Q 19. Identify several parties likely ... [FREE SOLUTION]

Chapter 22: Q 19. (page 553)

Identify several parties likely to be helped and hurt by inflation.

Short Answer

Expert verified

There are various parties that are affected by inflation in an economy.

Step by step solution

Step1. Definition

the situation in an economy where the average prices of all the goods and services increased because of some market pressures is period of inflation.

Step 2. Explanation

The lenders/creditors and consumers are hurt by inflation. As we discuss below:

1. lenders/creditors: lenders give their money on a fixed rate for a fixed period of time as they give money on less interest when inflation is not there. But when inflation occurs they do not change their interest rates so and when inflation occurs, they will be hurt by inflation because they will get less return as compared to market.

2. consumers: During period of inflation the purchasing power of a consumer decreases this is because, The goods which are cheaper become dearer because of inflation and now they have to pay more for the same quantity of goods.

Step 3.

The borrowers and employers will be helped by inflation:

1. employers: employers pay the wages but they hire the employees before inflation on a fixed wage so they don鈥檛 have to worry about inflation and can get the work done on the same wages.

2. Borrowers: borrowers will be benefitted from the inflation as the rates on which they take loans will not increase because of inflation and they pay the loans with less interest as compared to the current inflation period.

Inflation is a situation in an economy when the average prices of all the goods and services increased because of some market pressures.