Question

Cho owns and operates a store in a country experiencing a high rate of inflation. In order to prevent the value of money in her cash register from falling too quickly, Cho sends an employee to the bank four times per day to make deposits in an interest-bearing account that protects the store's revenues from the effects of inflation.
a. This is an example of:_________


i. menu costs

ii. unit of account costs

iii. shoe leather costs


b. Explain briefly the nature of the costs imposed.

Answer 1

Answer:

Shoe leather costs

Explanation:

(A) Shoe leather costs

(B) Inflation can be defined as the persistent rise in the prices of goods and services. Shoe leather costs can be defined as the costs of time and effort that are encountered by individuals while trying to prevent the effect of inflation. It describes the costs incurred by individuals that visits the bank often inorder to withdraw money needed to purchase goods and services during the time of inflation.

Shoe leather cost arises during the period of high inflation, individuals do not hold large amount of cash because there will be a reduction in the value of the money.