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 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
Economics/Inflation part 2?
Same variant applies to each question. Think about it for a minute and you%26#039;ll understand.
Hint: As a homeowner with a fixed mortgage, I LOVE inflation.
Economics/Inflation part 2?
Bad answer?! I think not, chief.
Fixed mortgage means my interest rate on principle will not increase. If inflation increases above my interest rate, then I am coming out ahead, particularly as I pay off principle. Report It
Economics/Inflation part 2?
Quite simply, my fixed mortgage rate is the cost of borrowing while inflation rate is my rate of return. The wider the gap between rate of return and cost of borrowing = profit to me. Report It
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