A SPECIAL COST OF UNEXPECTED INFlATION: ARBITRARY REDISTRIBUTIONS OF WEALTH

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A SPECIAL COST OF UNEXPECTED INFLATION: ARBITRARY  DISTRIBUTIONS OF WEALTH So far, the lost of inflation we have discussed occur  inflation is steady and predictable. Inflation has an additional cost.Unexpected inflation redistributes wealth among the population in a way that has nothing to  merit or need. These redistribution occur because many loans in the economy are specified  unit of […]

INFLATION INDUCED TAX DISTORTIONS

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INFLATION INDUCED TAX DISTORTIONS Almost all taxes distort incentives, cause people to alter their behavior, and lead to a less efficient allocation of the economy’s resources. Many taxes, however, become even more problematic in the presence of inflation. The reason is that lawmakers often fail to take inflation into account when writing the tax laws. Economists who have […]

RElATIVE PRICE VARIABIUTY AND THE MISALLOCATION OF RESOURCES

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RELATIVE-PRICE VARIABILITY AND THE MISAPPLICATION OF RESOURCES Suppose that the Eatabit Eatery prints a new menu with new prices every January and then  unchanged for the rest of the year. If there is no inflation, Eatabit’s relative prices-the prices of its meals compared to other prices in the economy-would be constant over the course of the year. By contrast, if the […]

MENU COSTS

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MENU COSTS Most firms do not change the prices of their products every day. Instead, firms often announce prices and leave them unchanged for weeks, months, or even years. One survey found that the typical u.s. firm changes its prices about once a year. Firms change prices infrequently because there are costs of changing prices. Costs of […]

A FALL IN PURCHASING POWER? THE INFLATION FALlACY

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A FALL IN PURCHASING POWER? THE INFLATION FALlACY If you ask the typical person why inflation is bad, he will tell you that the answer is obvious: Inflation robs him of the purchasing power of his hard-earned dollars. When prices rise, each dollar of income buys fewer goods and services. Thus, it might seem that inflation directly […]

MENU COSTS

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MENU COSTS Most firms do not change the prices of their products every day. Instead, firms often announce prices and leave them unchanged for weeks, months, or even years. One survey found that the typical u.s. firm changes its prices about once a year. Firms change prices infrequently because there are costs of changing prices. Costs of […]