The redistribution effect that arises from an unanticipated increase in inflation will affect
A)insurance contracts
B)cash holdings
C)people who own fixed rate bonds
D)all of the above
E)only B and C

Question

Quizplus · Accepted Answer

An unanticipated increase in inflation affects insurance contracts because the real value of the payouts decreases, cash holdings because the purchasing power of cash decreases, and people who own fixed-rate bonds because the real interest they receive is lower than expected. Therefore, all of the mentioned options are affected.

The Redistribution Effect That Arises from an Unanticipated Increase in Inflation