Question

Jack retired five years ago and now lives on a fixed-income annuity and a small savings account that pays him 1% interest on the balance. The current inflation rate is 1.7%. * 10 points A. Hurt B. Helped C. Unaffected

Answer 1

If inflation rises unexpectedly by 5%, some economic actors are helped while others are hurt. A union member with a COLA wage contract is helped, but someone with a large stash of cash, a bank lending at a fixed interest rate, and a person with no upcoming pay raise are hurt.

Step-by-step explanation:

If inflation rises unexpectedly by 5%, the economic actor is affected differently in each scenario:

A union member with a COLA (Cost of Living Adjustment) wage contract is helped because their wages increase with inflation.

Someone with a large stash of cash in a safe deposit box is hurt because the cash loses value due to inflation.

A bank lending money at a fixed rate of interest is hurt because the interest rate does not increase with inflation, causing their returns to be eroded by inflation.

A person who is not due to receive a pay raise for another 11 months is hurt because their purchasing power decreases when inflation rises.

Answer 2

Hurt

Step-by-step explanation:

Inflation is a persistent rise in general price level.

Nominal interest = inflation rate + real interest rate

If inflation is 1.7% and he is paid 1% interest. The inflation level is higher than interest paid. So, Jake is hurt because he is not compensated for the inflation level