Which of the following are costs of inflation?Select all that apply. A. Money neutrality D B. Menu costs C. Shoe-leather costs D D. Redistribution of wealth

## Step 1<br />The question asks us to identify the costs of inflation. Inflation refers to the general increase in prices and fall in the purchasing value of money. The costs of inflation are the negative effects that inflation has on the economy.<br /><br />## Step 2<br />Let's analyze each option:<br /><br />### A. Money neutrality<br />Money neutrality is a concept in economics that suggests that changes in the money supply only affect nominal variables and not real variables. This means that inflation does not affect real economic variables like output or employment. Therefore, money neutrality is not a cost of inflation.<br /><br />### B. Menu costs<br />Menu costs are the costs associated with changing prices. This includes the cost of updating price lists, menus, and price tags. Inflation leads to frequent changes in prices, which in turn leads to higher menu costs. Therefore, menu costs are a cost of inflation.<br /><br />### C. Shoe-leather costs<br />Shoe-leather costs refer to the costs of managing cash in an inflationary environment. This includes the time and effort spent on managing cash, such as frequent trips to the bank. Inflation erodes the value of money, leading to more frequent transactions and higher shoe-leather costs. Therefore, shoe-leather costs are a cost of inflation.<br /><br />### D. Redistribution of wealth<br />Inflation can lead to a redistribution of wealth. This is because inflation erodes the value of money, which can lead to a redistribution of wealth from lenders to borrowers. Therefore, redistribution of wealth is a cost of inflation.