costs and benefits of inflation

Question 1

costs of inflation

Answer 1

-decreased purchasing power
-erosion of savings (shoe leather costs)
-strengthening of the exchange rate (SPICED), relative inflation
-wage/consumer spiral
-menu costs
-fiscal drag (moving up into higher tax brackets)

Question 2

benefits of inflation

Answer 2

-workers with higher wages
-consumption is natural
-fiscal dividends
-higher growth (encourage rise in output)
-less unemployment in recession (firms hold onto their staff, pay more but less than the rate of inflation)

Question 3

evaluation of inflation

Answer 3

-type
-cause
-anticipated/unanticipated
-duration