Answer to Question #81509 in Macroeconomics for Jad

Question

1. Do you think that inflation imposes a net cost to the economy after considering the gains and loss? If so, which type of cost? Discuss each scenario below.

a) (1 mark) Nobu gets paid more frequently and thus has to make more trips to the banks down the road, when inflation is expected to be high.
b) (1 mark) Nobu gets reimbursed by RMIT for his work-related expenses. However, sometimes it takes longer time to reimburse him (quite often in reality!). When inflation is expected to be high, he is less willing to travel for his job.
c) (1 mark) Responding to unexpectedly high inflation, the manager of the Sofitel Hotel must reprint and resend expensive coloured brochures correcting the price of the accommodation in this season

Answer 1

1. Inflation imposes a net cost to the economy after considering the gains and loss, because it creates different types of cost and almost no gains.
a) Nobu gets paid more frequently and thus has to make more trips to the banks down the road, when inflation is expected to be high, so these are transaction costs.
b) Nobu gets reimbursed by RMIT for his work-related expenses. However, sometimes it takes longer time to reimburse him (quite often in reality!). When inflation is expected to be high, he is less willing to travel for his job, so it is devaluation cost.
c) Responding to unexpectedly high inflation, the manager of the Sofitel Hotel must reprint and resend expensive coloured brochures correcting the price of the accommodation in this season, so it is additional production cost.