Which of the following statements is FALSE?
A)homeowners with fixed-rate mortgages benefit from unanticipated high inflation
B)the costs of unanticipated inflation can be ignored, since the gains and losses of induced wealth transfers tend to cancel each other out over the economy as a whole
C)Social Security beneficiaries are better protected against unanticipated inflation than workers with long-term contracts
D)at least until 1985, the U.S. government gained from unanticipated inflation at the expense of U.S. taxpayers
E)workers who received the minimum wage greatly suffered from unanticipated inflation

Question

Quizplus · Accepted Answer

The costs of unanticipated inflation cannot be ignored, as they can lead to economic inefficiencies, distortions, and inequalities, such as the redistribution of income and wealth, the misallocation of resources, and the uncertainty and unpredictability of prices and returns. While induced wealth transfers can occur, they may not necessarily offset the losses incurred by those who are less able to adjust to inflation, such as fixed-income earners or retirees. Therefore, B is false, and the other statements are true or partially true. Homeowners with fixed-rate mortgages benefit from unanticipated high inflation because their mortgage payments become relatively cheaper in real terms. Social Security beneficiaries are somewhat better protected against inflation than workers with long-term contracts since their benefits are adjusted annually based on changes in the Consumer Price Index. The U.S. government gained from unanticipated inflation until the Tax Equity and Fiscal Responsibility Act of 1982, which indexed many tax provisions to inflation and reduced the real value of tax revenues. Workers who received the minimum wage suffered from unanticipated inflation because their real wages decreased, especially if the minimum wage was not adjusted frequently or sufficiently.

Which of the Following Statements Is FALSE