Question

which of the following is most true regarding unanticipated inflation?
i. workers with fixed wage rates are hurt by unanticipated inflation
ii. employers that charge fixed wages are hurt by unanticipated inflation
iii. lenders with fixed rate loans are helped by unanticipated inflation.
iv. borrowers who have fixed rate loans are helped by unanticipated inflation.
options:
i and iii only
i and iv only
ii and iii only
ii and iv only
inflation hurts all members of the economy equally

Explanation:

1. For Statement I: Unanticipated inflation reduces the purchasing power of fixed wages, so workers with fixed wages are hurt because their income buys fewer goods.
2. For Statement II: Employers paying fixed wages benefit, as the real cost of the wage decreases with inflation, so they are not hurt.
3. For Statement III: Lenders with fixed-rate loans receive repayments that have lower real value due to inflation, so they are hurt, not helped.
4. For Statement IV: Borrowers with fixed-rate loans repay with money that has lower purchasing power, so they are helped as the real burden of debt decreases.

Answer:

I and IV only