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"During periods of inflation, people use real resources to reduce their holdings of fiat money. Such activities produce a private benefit with no corresponding social gain, which illustrates the social cost of inflation." Explain this quotation and give an example.
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while seeing the question, let's for the move to the answer. So let's see here that because of inflation, people change their investment decisions, they have to go to the bank to opt for vary variable option, the time and money spent on changing their decision. If the shoe leather cost, the changes in investment decision are for the gain of the people personally. It does not have any positive impact on society since it does not have any benefit for the community. It is a social cost. For example, if the inflation increase that problem 0-5% in the economy, The real interest rate will reduce by 5%. The real interest rate is the interest rate. After lowering the inflation rate due to a reduction in real interest rate, interest rates, people will change their investment decision which will involve a cost. This decision affects the people personally but does not benefit society and hence is a social cost. So here is the full definition of the question that because of inflation, people change their investment decision, they have to go to the bank to opt for variable options. The time and money is spent on charging changing their decision is the shoe leather cost. The changes in the investment decisions are for the gain of the people personally. It does not have any positive impact on society since it does not have any benefit for the community. It is a social cost. For example, if the inflation increases from 0 to 5% in the economy, the real interest rate will reduce by 5%. The real interest rate is the interest rate. After lowering the inflation rate, you are the reductive do a reduction in real interest rate. People will change their investment decision, which will involve a cost. Their decision affect that people personally but does not benefit society, and hence either social cost. I hope you better understand the full definition. So, for any further queries and out some there for help. So thank you.
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