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What are the costs of inflation?
1. The cost of leather shoes: the resources wasted by people to reduce their money holdings during inflation.

2. Menu cost: the cost of changing prices during inflation.

3. Distorted consumer decision-making, relative price changes and resource allocation errors.

4. Tax distortion caused by inflation: the change of real interest rate is not considered in taxation.

5. Inflation erodes the real value of the pricing unit, causing confusion and inconvenience.

6. Inflation causes wealth to be redistributed at will: the expected interest rate remains unchanged, and the real interest rate changes due to inflation, so does the value of money. Reference answer source answer home