The costs of Inflation

Consider the following scenario: Your employer just gave everyone at your office a 2% raise to compensate you for inflation over the past year. After you get your first paycheck at the higher rate, you go out to eat at a nicer restaurant than usual because you feel that you can afford it now.

Q4.1

Which of the following costs of inflation best applies to the scenario?

a. Shoeleather cost

b. Menu cost

c. Relative price variability

d.Tax distortions

Q4.2

Explain your answer to Q4.1.