ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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people on fixed incomes
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Banks who loan money at a fixed rate of interest
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People who save money (if the interest rate earned in savings is less than the inflation rate)
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All the above are hurt by inflation
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Detailed explanation-1: -The retired person (interest income is fixed) will suffer more than the person with “large” debts to pay during “unexpected” inflation. Hence option 3 is correct.
Detailed explanation-2: -Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.
Detailed explanation-3: -Which of the following individuals would be most hurt by an unanticipated increase in inflation? Explanation: A retiree living on fixed income would be hurt because the retiree’s income would not increase to offset the negative effects of inflation.
Detailed explanation-4: -Unanticipated inflation occurs when the general price level changes unexpectedly. Those who are retired or on a fixed income seem to take the hardest hit, as well as those institutions that offer loans.
Detailed explanation-5: -The most adversely affected groups by inflation is usually the wage earners in the informal sector with a specific wage rate and pensioners with fixed pensions as their income remains the same but due to increase in the general price level their expenditure rises.