Question

_ would be helped by unexpected inflation

Answer 1

Unexpected inflation can have different effects on different economic actors. A union member with a COLA wage contract would be helped, someone with a large stash of cash would be hurt, a bank lending money at a fixed rate of interest would be hurt, and a person who is not due to receive a pay raise for another 11 months would also be hurt.

Step-by-step explanation:

Unexpected inflation can have different effects on different economic actors. In the scenario given, if inflation rises unexpectedly by 5%, the economic actors would be affected as follows:

1. A union member with a COLA wage contract: Helped. COLA stands for Cost of Living Adjustment, which means their wages will increase in line with inflation, ensuring that their purchasing power remains relatively stable.
2. Someone with a large stash of cash in a safe deposit box: Hurt. The value of cash decreases with inflation, so their purchasing power will be reduced.
3. A bank lending money at a fixed rate of interest: Hurt. Lending money at a fixed rate of interest means that the interest rate does not change with inflation. As a result, the real value of the interest income earned decreases with inflation.
4. A person who is not due to receive a pay raise for another 11 months: Hurt. Without a pay raise in line with inflation, the purchasing power of their wages will be reduced.