Final answer:
When actual inflation is higher than expected inflation, a redistribution of wealth takes place between savers and borrowers, and real wages may decrease or stay the same. Real wealth does not necessarily increase in this scenario.
Step-by-step explanation:
When actual inflation is higher than expected inflation, a redistribution of wealth takes place between savers and borrowers. This is because borrowers benefit from the higher inflation as they are able to pay back their loans with money that is worth less than when they borrowed it. On the other hand, savers lose out as the value of their savings decreases due to inflation.
Additionally, real wages may decrease or stay the same when actual inflation exceeds expected inflation. Real wages represent the purchasing power of income, so if the rate of inflation is higher than expected, the increase in wages may not keep up with the rising prices of goods and services. As a result, individuals may experience a decline in their real wages.
In terms of real wealth, it does not necessarily increase when actual inflation is higher than expected inflation. While assets like property and investments may increase in value during inflationary periods, the overall purchasing power of wealth may decline due to the erosion of the value of money.
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