Top Answer. No one really, relatively speaking only those who have hard cash or cash in the safest instruments like government securities and after that people who would have money in some cash equivalent hard commodity like gold etc. answer! Elderly on a fixed income and People who are paying on a loan with adjustable interest rates Inflation clearly does not behave as it used to. Unexpected inflation always redistributes wealth from people who have contracted to receive fixed nominal amounts in the future to the people who have contracted to pay those fixed nominal amounts. Which of the following groups are typically harmed by unexpected inflation? When unexpected inflation occurs, the value of debts decreases and the amount... Our experts can answer your tough homework and study questions. However, the other big losers those on fixed incomes like the elderly and anyone whose income isn’t indexed to inflation. Wiki User Answered . Shoe-leather costs. Individuals who receive fixed incomes are HURT by inflation Lenders and savers People who make fixed payments are HELPED borrowers 1. 0 1 2. Unexpected inflation affects the economic cycle. Unexpected inflation harms lenders and those holding monetary assets. Unanticipated deflation has the opposite effect. (think of Bernie the bank owner) HURT The money the bank receives for the loan repayment will be less in real terms (purchasing power) than the loan amount. Unexpected inflation is the surprise component of inflation which people haven’t incorporated in their pricing, costing, etc. An unanticipated increase in inflation will. The value of accumulated savings deteriorates, so the amount in their bank account is worth less The total labor force consists of: the number of employed persons plus the number of unemployed persons. Alternately, inflation may also be thought of as the erosion in value of an economy's currency caused due to money printing by the economy's central bank. © copyright 2003-2020 Study.com. Unanticipated inflation reduces the validity of the information on market prices for economic agents. What groups would most likely be hurt financially by unexpected inflation? Traditionally savers lose from inflation. both A and C A. lenders C. pensioners on fixed incomes 17. Here's why: Let's say you borrow 200 bucks from the bank and they have a 5% fixed interest rate on it. Inflation quite simply is an increase in prices across the board for many goods and services in an economy. As a result, you can take proper steps of saving enough for future to counter this effect. Some benefit, (Winners), while others are harmed, (Losers). When inflation …   Terms. C. Creditors receive lower nominal rates of interest when prices rise. 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During inflation, nominal interest rates rise. c. can decrease the value of a nation's currency relative to other nations. An unexpected rise in inflation ought to be the thing investors are most determined to guard against. (benefited-winners or harmed-losers by unexpected inflation) The U.S federal government which has almost $15 trillion in debt in 2011. Winners-benefited (benefited-winners or harmed-losers by unexpected inflation) Herb, who keeps his savings in an old coffee can. That's good. Now it's true that an unexpected increase in the inflation rate can unfairly hurt savers, since the inflation might not be factored into interest they receive. Both components have different costs. Over the years, unexpected inflation impacts employment, investment, and profits. Who is harmed the MOST during periods of unexpected inflation? Once inflation becomes prevalent throughout an economy, the expectation of further inflation becomes an overriding concern in the consciousness of consumers and businesses alike. harmed by both unexpected deflation and unexpected inflation. 3rd National, a bank that loaned many people money for home … Karen, a retired school teacher that relies upon her fixed pension to pay for her expenses. This is called monetary inflation.   Privacy For example, in periods of hyperinflation, people who had saved all their life could see the value of their savings wiped out because, with higher prices, their savings are effectively worthless. In addition, the poor are generally renters so they don’t even benefit from a “cheaper” mortgage while they are paying higher prices for their groceries. Because of its destabilizing effects on the economy, unexpected inflation is of considerable concern to economic policymakers. Answers (2) Lorette 2 May, 10:56. When the actual rate of inflation turns out to be less than the expected rate, your money holds onto more of its buying power. Categorize each statement as being winners or … 4. Services, Unanticipated Inflation: Definition & Overview, Working Scholars® Bringing Tuition-Free College to the Community. Asked by Wiki User. Which of the following groups are typically harmed by unexpected inflation? Inflation is the a period of time during which there is a continuous rise in the general price level of various commodities consumed by the majority of the population. Unexpected inflation is the inflation experienced that is above or below that which we expected. If the real rate of interest is to remain unchanged, the nominal interest rate. This preview shows page 17 - 20 out of 28 pages. A. Use the descriptions below to determine if they have benefited (\"Winners\") or have been harmed (\"Losers\") by unexpected inflation. If the real interest rate falls, the family will be helped. Unexpected inflation may occur when the currently held macroeconomic model does not adequately account for new circumstances. If the real interest rate (the interest rate after inflation is deducted) rises, the family will be hurt. Monetary inflation may or may not cause price inflation. This is called price inflation. For Example you know that the Price of household products may increase for some known factor that has caused the prices of Inputs to rise. Sciences, Culinary Arts and Personal Who is harmed the MOST during periods of unexpected inflation? The shanty towns and camps of unemployed that sprang up in the United States during the Great Depression were called: Why are fixed income receivers hurt by unexpected inflation? All other trademarks and copyrights are the property of their respective owners. Comment; Complaint; Link; Yseult 2 May, 11:03. 2. Inflation affects them especially hard because the prices of things they buy go up while their income stays the same. Northern Virginia Community College • ECON 201, LaGuardia Community College, CUNY • ECON 301, California State University, Long Beach • ECON 100, Ivy Tech Community College of Indiana • ECON 101, University of Maryland, Baltimore County • ECON 102, Gujarat Technological University • ECON 101, Northwest Missouri State University • ECON 102, Copyright © 2020. But if you're a borrower, a lower-than-expected inflation rate essentially costs you money. Banks extend many fixed-rate loans. Additionally, when inflation is anticipated you can fore… Why the most important hedge is against unexpected inflation I T IS HARD to say precisely when a cherished theory of inflation lost its sway. b. may discourage investment and economic growth. If prices rise, the value of money falls, and the real value of savings decline. Creditors are paid back money with less spending power than when it was originally loaned out. D. Creditors receive higher nominal rates of interest when prices rise. 7. Unanticipated inflation hurts lenders that lend money with fixed rate interest. Lenders, on the other hand, are hurt by unexpected inflation. A) 1 B) 1 and 3 C) 1, 2, and 3 D) 2 and 4 - 13847221 People are affected in different ways by unexpected inflation. Inflation results in the value of each unit of currency dropping in purchasing power to reflect the underlying economic reality. Course Hero is not sponsored or endorsed by any college or university. Use the descriptions below to determine if they have benefited "Winners" or have been harmed "Losers" by unexpected inflation. The difference between the nominal interest rate and the rate of inflation is: If the nominal interest rate is 6% and the inflation rate is 3%, the real interest rate is, What would happen to the real interest rate if originally the nominal interest rate was 14% and the, inflation rate was 10%, then the nominal interest rate fell to 7% as the inflation rate fell to 4%? Such a “PREDICTED INFLATION”does not cause enough harm to the people since you can handle it by proper planning. The costs imposed on a firm from changing listed prices is termed: The cost incurred when individuals reduce their money holdings because of inflation is termed as the: Which of the following refers to extremely high rates of inflation for sustained periods of time? Create your account. Your savings from your summer job are in a savings account paying a fixed rate of interest. But for now, so-called core inflation, which calculates inflation without volatile energy and food prices, has remained capped. Which of the following groups are typically harmed by unexpected inflation? 0. When unexpected inflation occurs, some people in society are harmed while other people are made better off. But if you had to pick a moment, it might be during an exchange last July between Alexandria Ocasio-Cortez, a first-time congresswoman who had risen quickly to prominence, and Jerome Powell of the Federal Reserve. We can simply understand this phenomenon by its title “ANTICIPATED” , which means Predicted or “KNOWN”. It hurts creditors because the repaid money is worth less than when they lent it out. Become a Study.com member to unlock this As the price level increases, purchasing power is decreased. Inflation allows borrowers to pay lenders back with money that is worth less than it was when it was originally borrowed, which benefits borrowers. Inflation is a monetary phenomenon that occurs when the number of units of currency in an economy are greater than the value of goods and services in an economy. In this lesson summary review and remind yourself of the key terms and calculations used in describing the costs of inflation. All rights reserved. Answer. 18. The cost incurred when individuals reduce their money holdings because of inflation is termed as the: shoe-leather cost 19. Elderly on a fixed income and People who are paying on a loan with adjustable interest rates. Savers. Joy, who has borrowed 40,000 to pay for her education. Why are creditors harmed by unexpected inflation? It, Say that initially the nominal interest rate is 6% and prices are stable, but the inflation rate the, following year rises to 3%. Herb, who keeps his savings in an old coffee can. Unexpected Inflation A situation in which the inflation rate is higher than economists, regulators or others anticipated. Course Hero, Inc. Creditors aren't harmed by unexpected inflation. Unexpected inflation harms lenders and those holding monetary assets. When unexpected inflation occurs, the value of debts decreases and the amount... See full answer below. Which of the following groups are typically harmed by unexpected inflation a, 225 out of 244 people found this document helpful. 16. a. lenders b. borrowers c. pensioners on fixed incomes d. both a. and c. e. both b. and c. ANS: D PTS: 1 92. Inflation benefits debtors because the real value of what the owe diminishes. Means the dollar is worth less, so the purchasing power of their real income falls Why are savers hurt by unexpected inflation? Inflation: a. can cause a redistribution of income from creditors to borrowers. B.
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