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Examples of Anticipated and Unanticipated Inflation Costs

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Question: Give two costs of anticipated inflation and two costs of unanticipated inflation. How is the magnitude of each affected if, instead of a moderate inflation, hyperinflation occurs.

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Solution Summary

Unanticipated inflation, inflation that is not expected will redistribute wealth and income. Anticipated inflation, inflation that is expected, results in a much smaller redistribution of wealth and income. This solution provides examples of costs for both unanticipated and anticipated inflationary costs and discusses the affect of these costs during hyperinflation.

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Two costs of anticipated inflation are shoe-leather costs (opportunity cost of time and effort) and menu costs (cost to firms for updating price materials like brochures, menus, and pamphlets in response to price changes in an economy). Two costs of unanticipated ...

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