Who is Affected by Inflation? quiz #1 Flashcards
Who is Affected by Inflation? quiz #1
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How does inflation affect the purchasing power of money? Inflation reduces the purchasing power of money because as prices rise, each unit of currency buys fewer goods and services than before. Which statement best describes U.S. inflation between 1982 and 2000? During this period, U.S. inflation was relatively low and stable, meaning price levels increased gradually and predictably. Which scenario is most likely the result of inflation? A retiree living on a fixed pension finds that their income buys fewer goods and services over time as prices rise. What is the difference between anticipated and unanticipated inflation? Anticipated inflation is expected and can be planned for, while unanticipated inflation occurs unexpectedly and can disrupt financial plans. Why are landlords with fixed lease payments negatively affected by inflation? Landlords with fixed lease payments are hurt because their rental income stays the same while prices rise, reducing the real value of their earnings. How does inflation impact the real interest rate earned by savers? Inflation reduces the real interest rate, meaning savers earn less in terms of purchasing power than the nominal interest rate suggests. Why are people who hoard cash especially vulnerable to inflation? People who hoard cash are vulnerable because their money does not earn interest and loses value as prices increase. How do cost of living adjustments protect flexible income receivers from inflation? Cost of living adjustments increase income in line with inflation, helping flexible income receivers maintain their purchasing power. Why do debtors benefit from unanticipated inflation? Debtors benefit because the money they repay is worth less in purchasing power, making it easier to pay back loans. What happens to the real income of someone whose nominal income remains constant during inflation? Their real income decreases because the same amount of money buys fewer goods and services as prices rise.
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