Knowledge of Inflation?

Question

As they say, even dark clouds can have a silver lining for someone. This is also true with inflation.

Based on what you now know about inflation, both its causes and hidden costs, answer the following question:

Who in our society benefits the most from inflation?

Explain your response.

Answer 1

Your question is not specific enough. It depends upon what causes the inflation. If it is generated through seignorage, then the government benefits the most as it experiences an increase in inflation tax (you will notice that poor countries with substandard tax schemes have hyperinflation- this is because the government or central bank prints more money, leading to inflation and in turn an inflation tax.

If it is normal inflation, you need to consider a concept in economics called opportunity cost. Inflation is simply the result of an activity in the economy. If we all did nothing, no inflation would be witnessed. If we exported billions of goods, we would get inflation. In this case, the manufacturer or exporter benefits, as he makes more money, but does he make money at a rate higher than inflation. Inflation benefits those for whom the gains from creating the inflation (the increase in spending to generate the inflation) exceed the rate of inflation.

I hope this helps.

Answer 2

Inflation is the rise in prices and wages, which should include interest. So, if everyone expects inflation, then the only people who loose out are those who are not in good bargaining situations.

On the other hand, if you define inflation to be only prices and not wages, then employers gain by increasing revenues over labor costs and - as said before - holders of assets loose as they are paid off in dollars that are worth less.

Answer 3

It's great for people with existing debt, since inflation reduces the value of the money that they owe. It's also generally good for workers, that's why in the Kensian balance between inflation and unemployment businesses/Republicans will opt for low inflation and workers/Democrats will opt for higher inflation.

Answer 4

One holding appreciable assets, such as a home, or some investments.
Does this need an explanation?

You didn't ask, the losers are those on fixed incomes and savings accounts.

Answer 5

The rich people or big company