High and unexpected inflation has a greater cost
A)for those who save than for those who borrow.
B)for those who hold a little money than for those who hold a lot of money.
C)for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
D)for savers in low income tax brackets than for savers in high income tax brackets.

Question

Quizplus · Accepted Answer

If inflation increases wages by as much as the increase in prices, then the real wage rate (purchasing power) stays the same, and there is no significant cost to workers that experience this kind of inflation. Holders of large amounts of money or borrowers can adjust to unexpected inflation more easily than people who hold a little money or save. Additionally, taxes are assessed against nominal interest earnings, so higher tax rates would affect savers more, irrespective of the tax bracket. Therefore, out of the given options, those whose wages increase by as much as inflation have the least impact on inflation's high and unexpected cost than the other groups.

High and Unexpected Inflation Has a Greater Cost