AP®︎ Macroeconomics: Topic 2.5 Flashcards

Master key terms and definitions for Topic 2.5 of AP Macroeconomics – Costs of Inflation to help you prep for quizzes and the AP exam.

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Term

Menu Costs

Definition

Costs to firms of changing posted prices, catalogs, menus, and related materials.

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Menu Costs
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Costs to firms of changing posted prices, catalogs, menus, and related materials.

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Shoe-Leather Costs
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Time and effort spent reducing cash holdings and making more frequent financial transactions.

MEA-1.H
Loss of Purchasing Power
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A decline in what money or fixed nominal income can buy as prices rise.

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Redistribution of Wealth from Unexpected Inflation
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A transfer of real income or wealth between groups when actual inflation differs from expected inflation.

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Lenders and Borrowers Under Unexpected Inflation
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Higher-than-expected inflation helps borrowers and hurts lenders by lowering debt's real repayment value.

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Unexpected Deflation and Debt Redistribution
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Lower-than-expected prices raise debt's real burden, helping lenders and hurting borrowers.

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