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6 costs of inflation
1. shoeleather cost 2.menu cost 3. relative price variable & misallocation of resources 4. inflation induced tax distortions 5.confusion and inconvinience 6. arbitrary redistribution of wealth ( the borrower wins in an infaltion and the lender loses)
tax burden on saving
- real interest rate + inflation=nominal interest rate
- reduced interest due to 25% tax (.25*nominal interest rate)
- after tax nominal interest rate (.75*nominal interest rate)
- after tax real interest rate (after tax nominal rate-inflation rate)
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