Question

The shoe-leather cost of inflation is minimized by targeting a zero rate of inflation. True of False?

A detailed explanation would be very much appreciated! Thank you kind souls

Answer 1

True
Shoe leather cost measure the time and effort that people extended by holding little amount of cash to reduce the inflation rate. There is a time constraint behind when going to bank and get the cash. One of the most important causes for inflation is increasing the shoe leather cost. During high inflation period, people were not willing to hold cash in hand because of the low vale of currency; this will leads to the rise in price. Thus people deposit this cash in bank and certain cost incurred through the travelling to bank to take cash. This leads to shoe leather cost. This include all the costs associated with holding the cash if there is high inflation.