Respuesta :
a. The government will probably benefit from the income tax system, which does not take inflation into account when determining taxable income, such as capital gains.
Define inflation
In economics, inflation refers to a rise in the average price of products and services throughout a country's economy. Thus the purchasing power of money decreases when the general price level rises, which is why inflation is often known as a rise in prices.
b. A fixed-rate mortgage holder will gain from this. Future inflation will cause the value of the currency to decline, making it cheaper for the homeowner to repay the mortgage company.
c. If a unionized employee's labor contract had language allowing for a pay increase based on changes in the CPI, the employee would likely be unaffected. The worker may suffer if the pay raise is not made as soon as possible if the adjustment is made after the real rate of inflation has increased.
d. The college would be harmed. The college expected that the yield rate it received (and the price it paid for the bonds) would have been based on a 3% expected rate of inflation. Hence, the nominal market interest rate has now increased to 5%, and the value of the bonds will have fallen (bond yields and interest rates are inversely related).
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The complete question is:
Suppose that people expect inflation to equal 3 percent but, in fact, prices rise by 5 percent. Describe how this unexpectedly high inflation rate would help or hurt the following:
a. The government
b. a homeowner with a fixed-rate mortgage
c. a union worker in the second year of a labor contract
d. a college that has invested some of its endowment in government bonds
