Identifying costs of inflation Kyoko owns and operates a store in a country experiencing a high rate of inflation. In order to prevent the value of money in her cash register from falling too quickly, Kyoko sends an employee to the bank four times per day to make deposits in an interest-bearing account that protects the store's revenues from the effects of inflation. This is an example of theof inflation.

Shoe-leather Costs.

Explanation:

In this scenario, Kyoko owns and operates a store in a country experiencing a high rate of inflation. In order to prevent the value of money in her cash register from falling too quickly, Kyoko sends an employee to the bank four times per day to make deposits in an interest-bearing account that protects the store's revenues from the effects of inflation. This is an example of the shoe-leather costs of inflation.

Inflation can be defined as the persistent rise in the price of goods and services in an economy. Generally, inflation usually causes the value of money to fall and as a result, it imposes more cost on an economy.

A Shoe-leather costs can be defined as the costs associated with time, energy and effort people expend to mitigate the effect of high inflation on the depreciative purchasing power of money by frequently visiting the bank in order to minimize inflation tax they pay on holding cash.

Figuratively speaking, in order to protect the value of money or assets, some people wear out the sole of their shoes by going to financial institutions more frequently to make deposits.

Hence, Kyoko is practicing a shoe-leather cost of inflation so as to protect the store's revenues from the effects of inflation.

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