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unexpected inflation will hurt

100. This means the real value of the debt unexpectedly falls, but your interest cost remains the same. Individuals who receive fixed incomes are HURT by inflation Lenders and savers People who make fixed payments are HELPED borrowers 1. “Inflation hurts … Since pension is deferred earnings, the workers are essentially providing the firm a loan. D. Other Effects: 1. While this is skewed somewhat by the high-inflation periods of World War I, World War II, and the 1970s, it still means that investors needed to earn an average annual return of 3.2% just to stay even with inflation. What groups would most likely be hurt financially by unexpected inflation? Inflation benefits debtors because the real value of what the owe diminishes. You decide to pay it back a month later with 5% … Steven M. Reff Economics Lecturer University of Arizona (2007 - 2016) The 2015 University of Arizona Five-Star Faculty Award: Steven M. Reff Economics Lecturer University of Arizona (2007 - 2016) The 2015 University of Arizona Five-Star Faculty Award: Grokkingecon.com e Workbook Activities. However, companies can also be hurt by inflation if it's the result of a surge in production costs. B. Unanticipated inflation has stronger impacts; those expecting inflation may be able to adjust their work or spending activities to avoid or lessen the effects. Solution details: STATUS Answered QUALITY Approved ANSWER RATING. D) reduces the real burden of the public debt to the federal government. inflation?Hurt?Say we experienced a high but constant rate . Like any creditor, the worker is hurt when inflation is higher than anticipated. Economists usually oppose high inflation, but they oppose it in a milder way than many non-economists. unexpected healthcare costs And here is the really big wrinkle: Seniors also spend far more on healthcare than younger people. (Solution Download) unexpected inflation? In contrast, inflation can help those who owe money that they can pay in less valuable, inflated dollars. Inflation does vary over time, but we’re currently in a period of very low inflation. D. Savers will be hurt by unanticipated inflation, because interest rate returns may not cover the cost of inflation. If you have a debt, the best thing is to have a fixed interest rate, then unexpectedly high inflation. 200. Unexpected Inflation – Moderate – unexpected inflation is where costs start to become interesting. 5) Who gets helped by unexpected . Only the portion of inflation or deflation that is unanticipated leads to transfers of wealth between debtors and creditors---the rest is accounted for in the rate of interest specified in the loan contract. Businesses with large inventories Businesses with large debts Businesses with wages determined by long-term contracts Businesses holding large amounts of financial assets with fixed interest rates : 2. Answer :- Individuals who receive fixed incomes are HURT by inflation Example : Lenders and savers People who make fixed payments GAIN Example : borrowers Unanticipated inflation hurts lenders that lend money with fixed rate interest. Wiki User Answered . Then explain one harm associated with both expected and unexpected inflation. In summary: inflation will hurt those who keep cash savings and workers who have fixed wages; Inflation will benefit those with large debts, who with rising prices find it easier to pay back their debts; Losers from inflation. (think of Bernie the bank owner) HURT The money the bank receives for the loan repayment will be less in real terms (purchasing power) than the loan amount. 0 1 2. Here's why: Let's say you borrow 200 bucks from the bank and they have a 5% fixed interest rate on it. Question: If inflation rises unexpectedly by 5%, indicate for each of the following whether the economic actor is helped, hurt, or unaffected: a) A Union member with a COLA wage contract Unexpected inflation will tend to hurt those whose money received, in terms of wages and interest payments, does not rise with inflation. B) helps savers. Unexpected inflation will tend to hurt those whose money received, in terms of wages and interest payments, does not rise with inflation. Question: QUESTION 13 Which Of The Following Would Be Hurt By Unexpected Inflation? Inflation means the value of money will fall and purchase relatively fewer goods than previously. If people know that there will be a certain degree of inflation, it hurts no one as they will put it into the contract of the loan. Their nominal income does not rise with prices. What is fiscal policy? 2. Identify ways inflation can blur the perception of supply and demand; Explain how inflation can cause redistributions of purchasing power; The Confusion Over Inflation. As the inflation rate increases and becomes more variable, more resources may be devoted to predicting inflation and fewer devoted to the production of goods and services. The American economy: Dramatically high inflation historically has hurt the American economy, McBride says. (On the alternative view, unexpected inflation, is bad news for savers who have a fixed interest) Example Mortgage Debt and Inflation. Expected inflation is calculated into the nominal interest rate. Why or why not? Answer. In contrast, inflation can help those who owe money that they can pay in less valuable, inflated dollars. The 1920s The 1930s The 1940s The 1950s: 3. If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bonds? This threshold rate of inflation has been recently estimated for Pakistan as nine percent, [3] which clearly shows that double-digit inflation will hurt growth. lower real interest rate than was expected. Finally, it assumes inflexibility. Who is helped and/or hurt in the long run? Unexpected inflation is different. Instant Solution Download for the question described below . *What is the Difference between Inflation and Price Level? 1 Answer to Explain one harm associated with unexpected inflation that is not associated with expected inflation. C. Fixed-income groups will be hurt because their real income suffers. The average rate of inflation in the United States since 1913 has been 3.2%. Workers and firms often agree on a fixed nominal pension when the workers retires. Asked by Wiki User. Low rates of inflation have relatively little economic impact over the short term. Banks extend many fixed-rate loans. Unexpected Inflation: ADVERTISEMENTS: ... Unanticipated inflation also hurts individuals on pension. Unexpected inflation will tend to hurt those whose money received, in terms of wages and interest payments, does not rise with inflation. In contrast, inflation can help those who owe money that can be paid in less valuable, inflated dollars. A) True B) False. The government power to tax and spend to address inflation . Inflation makes goods produced abroad relatively less expensive, resulting in an increase in imports. Do you think perfect indexing is possible? 100. of inflation for a long period of time. What is nominal exchange rate ? Healthcare inflation has been outpacing general inflation … Low rates of inflation have relatively little economic impact over the short term. Top Answer. D) reduces the real burden of the public debt to the federal government. When did the Great Depression take place? Unanticipated inflation helps some groups in the economy. Which of the following would be hurt by unexpected inflation? Savers. The effects on individuals and companies, however, are quite asymmetric. *Who is Hurt by Inflation? 2. As a result, the worker receives a lower-than-expected real wage. We can now establish the approximate relationship between nominal interest rates and the expected rate of inflation. Problems. Low rates of inflation have relatively little economic impact over the short term. Will unexpected inflation hurt lenders or borrowers? Explain whether the following statements are true, false, or uncertain. It hurts creditors because the repaid money is worth less than when they lent it out. A) True. Unexpected Inflation. Unexpected inflation will: Hurt borrowers Hurt lenders Hurt borrowers and lenders equally Have no effect on either borrowers or lenders. The nominal interest rate is the sum of expected inflation and the real interest rate. Get more help from Chegg. In contrast, inflation can help those who owe money that they can pay in less valuable, inflated dollars. Inflation is a continues rise in the price level. C) hurts people whose sole source of income is from Social Security benefits. Price of one countries currency in terms of anthers . Most inflation-based arguments rely on an inflation rate of at least 3% for people to make financial moves based on the inflation rate. Unexpected inflation will tend to hurt those whose money received, in terms of wages and interest payments, does not rise with inflation. In general, borrowers will benefit, lenders and holders of nominal assets (in particular bonds) will be hurt, and holders of real assets will be unaffected. Unanticipated inflation A) hurts borrowers and helps lenders. c. Unexpectedly high inflation hurts a union worker in the second year of a labor contract because the contract probably based the worker's nominal wage on the expected inflation rate. Low rates of inflation have relatively little economic impact over the short term. 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