2.5 Costs of Inflation

Hurley, a farmer, buys machinery with a fixed-rate loan to be repaid over seven years

• harmed by unanticipated inflation

• benefits from unanticipated inflation

A bank lends money at a fixed rate of 3%.

• harmed by unanticipated inflation

• benefits from unanticipated inflation

Ben's savings from his part-time job are in a savings account paying a fixed rate of interest.

• harmed from unanticipated inflation

• benefits from unanticipated inflation

• uncertain

Jack signs a rental agreement to pay $1,500 a month for an apartment for three years.

• benefits from unanticipated inflation

• harmed from unanticipated inflation

An attorney spends two hours each week researching if her hourly rate is comparable to other lawyers.

• shoe leather costs

• menu costs

• unit of account cost

The owner of a restaurant spends an extra two hours a week creating and updating coupons.

• shoe leather costs

• menu costs

• unit of account cost

Each month your rent increases so you can't set up an online automatic payment. You must pay cash and deliver the rent to your landlord in person.

• Shoe leather cost

• menu cost

• unit of account cost

Which of the following statements is true of unanticipated inflation?

• It decreases the economic well-being of all members of society proportionally

• It decreases the economic well-being of all members of society equally.

• It increases the economic well-being of net debtors.

• It increases the economic well-being of net creditors.

Which of the following groups would most likely gain form unanticipated inflation?

• Landlords who won apartments in cities with rent controls

• Individuals who have fixed retirement incomes

• Individuals who have borrowed money at fixed interest rates

• Banks that have loaned all excess reserves at a fixed interest rate

The federal government starts to pay down its $21 trillion debt

• Harmed

• Benefit