Question

Determine if the people in the example have benefited (i.e., are winners) or have been harmed (i.e., are losers) by unexpected inflation.1. Winners2. Losers

Answer 1

Answer:

Winners

• 3rd National, a bank that loaned many people money for home purchases.

Losers

• Karen, a retired school teacher that relies upon her fixed pension to pay for her expenses.

• Herb, who keeps his savings in an old coffee can.

• Joy, who has borrowed $40,000 to pay her college education.

• The US federal government which had almost $15 trillion in debt in 2011.

Explanation:

When unexpected inflation occurs, the usual plan to by Monetary Institutions of a country is raising the interest rates.

By doing that, they want to stop it or slowly decelerate it.

So that it becomes more expensive to take a loan, the idea is to reduce consumption.

In Economics, it's a bad scenario after all. Few winners. Many losers.

So, let's examine them

Winners

• 3rd National, a bank that loaned many people money for home purchases.

At first, The 3rd National is going to be winning since the value of the debt will rise, depending on the type of contract and an increase in the interest rate will demand corrections on the monthly payments. But on the other hand, the number of default clients and overdue installments will raise for sure.

Losers

• Karen, a retired school teacher that relies upon her fixed pension to pay for her expenses.

Inflation reduces the real buying value of her checks. And her pension can't grow otherwise this will feed the inflation too.

• Herb, who keeps his savings in an old coffee can.

Since his money is not invested then He's not having any earning that might give him some compensation. So his money is even more devalued.

• Joy, who has borrowed $40,000 to pay her college education.

Depending on the contract Joy might be sleepless. Either her monthly payments will become more expensive or She may experience difficulties because of the weekly growing prices.

• The US federal government had almost $15 trillion in debt in 2011.

Certainly, the president and his secretary will have to address the fact that due to inflation and the chosen medicine make the nation's debt up to the sky. They must renegotiate the payment deadlines.