Question

Suppose that people expect inflation to equal 5 percent, but in fact, prices rise by 7 percent. Which of the following groups or individuals are hurt by this unexpectedly high inflation rate?a. A union worker in the second year of a labor contract b. The government c. A homeowner with a fixed-rate mortgage d. A college that has invested some of its endowment in government bonds that are not indexed Treasury bonds

Answer 1

Answer: The answer is A

Step-by-step explanation:

Inflation can be defined as a continuous upward movement in the general price level of goods and services. It is a condition in which supply persistently fails to keep pace with expansion of demand. It one of the macroeconomic problems which may affect the economy and has a negative effect on the purchasing power of money. The types of inflation that can exist includes demand pull inflation, Cost push inflation, creeping inflation, Galloping inflation, and hyper inflation.

Inflation in an economy could have a negative effect on the income of people in the country, such as workers, pensioners, widowers.In other words, people receiving fixed income like wages and salaries are seriously affected because the value of their money has been reduced by inflation. The income they receive from their employers has lost its purchasing power. Hence, the money will not be enough to buy more goods and services which reduced the standard of living of the workers in the country.