Which statement best describes how the cost of unexpected inflation is distributed?
A) Unexpected inflation has a greater cost for those who borrow than those who save.
B) Unexpected inflation has a greater cost for those who hold a little money than for those who hold a lot of money.
C) Unexpected inflation has a greater cost for those whose wages increase by as much as inflation than those who are paid a fixed nominal wage.
D) Unexpected inflation has a greater cost for savers in high income tax brackets than for savers in low income tax brackets.

Question

Quizplus · Accepted Answer

Unexpected inflation erodes the real value of savings, and those in high income tax brackets are more affected due to higher taxes on nominal interest income, reducing their real after-tax return.

Which Statement Best Describes How the Cost of Unexpected Inflation