Explain the term shoe-leather costs
Increased costs of transactions caused by inflation are known as shoe-leather costs, an allusion to the wear and tear caused by the extra running around that takes place when people are trying to avoid holding money.
However, compared to other inflation caused cost-factors, the shoe-leather costs are quite small.
Explain the term Menu Cost
In a modern economy, most of the things we buy have a listed price. Changing a listed price has a real cost, called a menu cost.
Explain the term unit-of-account costs
The unit-of-account costs of inflation are the costs arising from the way inflation makes money a less reliable unit of measurement.
Explain the terms nominal interest rate and real interest rate.
The nominal interest rate is the interest rate in dollar terms – for example, the interest rate on a student loan. The real interest rate is the nominal interest rate minus the rate of inflation.
Explain the term disinflation
The process of bringing the inflation rate down is called disinflation. This process is very costly!