Question

Lorenzo manages a grocery store in a country experiencing a high rate of inflation. He is paid in cash twice per month. On payday, he immediately goes out and buys all the goods he will need over the next two weeks in order to prevent the money in his wallet from losing value. What he can't spend, he converts into a more stable foreign currency for a steep fee. This is an example of the______of inflation.
a. menu costs.
b. shoe-leather costs.
c. unit-of-account costs.

Answer 1

Answer:

This is an example of shoe-leather costs of inflation.

Explanation:

In this case, local currency looses its value so quickly that Lorenzo is doing a great efford to mantain the value of his work. Then we can refer to shoe-leather cost of inflation, which is related to cost of time and effort that Lorenzo spend trying to avoid the lost of purchaising power.