Costs
of
Inflation—1
Shoe-leather
Costs
m
Suppose
workers
who
face
inflation
tax
-
(the real
wealth
drops
as
the
price
level
rises).
-
To
avoid
the
loss
in
real
wealth
(inflation
tax),
people
minimize
their
money
holdings
during
periods
of
rapid
inflation.
-
They
may
attempt
to
spend
their
earnings
on
physical
goods
as
quickly
as
possible,
or
convert
their
money
to
foreign
currencies
of
a
nation
with
a
lower
and
more
stable
rate
of
inflation
(i.e.
Zimbabwe
people
use US
dollars).
m
The
trips
and
errands
to
convert
money
to
physical
goods
or
foreign
currencies
incurs
time
and
efforts.
Figuratively,
these
costs
are
expressed
by
the
wear
and
tear
on
people's
shoes.
m
The
inconvenience
associated
with
minimizing
money
holdings
are
known
as
shoe-leather
costs.
Principles
of
Macroeconomics
672
