Question

Suppose that political upheaval in argentina has sparked rampant inflation. a. explain how this unexpected inflation would impact the following groups: i. retirees living on fixed monthly pensions ii. banks with many outstanding loans that are being repaid at fixed interest rates

Answer 1

All consumers including banks, even retirees, are directly impacted by inflation in terms of their income, savings, and spending.

How Inflation affects retirees?

• When determining whether to boost the qualified retirement plan contribution limits or the monthly Social Security benefits, the federal government utilizes inflation as a baseline.
• Pensions, on the other hand, may or may not increase in value with inflation, and private businesses frequently have internal guidelines for how and when to make cost-of-living adjustments.
• The main worry for retirees is how inflation would influence their ability to spend their money on essentials like healthcare, travel, and recreation, all of which are expected to be more expensive during inflationary periods.
• To guard against rising prices, retirees can diversify their sources of income, manage their savings, and make prudent spending decisions.

How will inflation impact banks?

Central banks, including the Federal Reserve, may raise interest rates in an effort to reduce inflation if it is rising while the economy is expanding. Consumer borrowing may slow down as a result of higher interest rates as they take out fewer loans.

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