What are the factors that will determine the optimal inflation rate?

What will be an ideal response?

ANSWER:

In short, the factors that will determine the optimal inflation rate are the relative magnitudes of the costs and benefits of inflation. Therefore, on the cost side, individuals would consider: shoe-leather costs, tax distortions, money illusion, and inflation variability. On the benefit side, one would consider: seignorage, the option of a negative real interest rate, and money illusion. So, an individual would compare the costs and benefits of inflation and choose some optimal inflation rate.