Gilberto manages a grocery store in a country experiencing a high rate of inflation. He is paid in cash twice per month. On payday, he immediately goes out and buys all the goods he will need over the next two weeks in order to prevent the money in his wallet from losing value. What he can't spend, he converts into a more stable foreign currency for a steep fee. This is an example of the

Shoe-leather Costs.

Explanation:

Since we have been able to deduce that, Gilberto manages a grocery store in a country experiencing a high rate of inflation. Also, Gilberto is paid in cash twice per month. On payday, he goes out immediately to purchase all the goods he will need over the next two weeks in order to prevent the money in his wallet from losing value.

What Gilberto can't spend, he converts into a more stable foreign currency for a steep fee. This is an example of the Shoes-leather costs of inflation.

Shoe-leather costs in economics is defined as the costs of time, energy and effort that is being expended by individuals to mitigate the effect of a high inflation on the depreciative purchasing power of money by visiting depository financial institutions frequently, so as to minimally reduce inflation tax they are expected to pay on holding cash.

Figuratively speaking, this simply implies that, in order to protect the value of assets or money, individuals usually wear out the sole of their shoes by visiting banks or other depository financial institutions more frequently to make deposits.

Hence, in this context, Gilberto practiced a shoe-leather cost of inflation in order to mitigate the nominal interest rates.

Please note, inflation is defined as the persistent rise in the price of goods and services in a country's economy at a specific period of time.

i'ts proportional. if the inflation rate is 12% for example, the cpi will be 12% less.

hope it ,

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