Question

Joshua is retired. He lives on a fixed pension. His daughter Sue just bought a house. She has fixed rate of interest on her mortgage.
How would Joshua and Sue be affected by unanticipated inflation in regards to Joshua's pension and Sue's mortgage?
A
Joshua and Sue would both benefit from unanticipated inflation.
в
Joshua would benefit, and Sue would lose from unanticipated inflation
Joshua would lose, and Sue would benefit from unanticipated inflation.
D
Joshua and Sue would both lose from unanticipated inflation.

Answer 1

Joshua would lose and Sue would benefit from unanticipated inflation.

Explanation:

• Both Joshua and Sue are associated with fixed pension and fixed interest respectively.
• Now the value of money goes down due to inflation
• So to live as usual, Joshua need to spend some extra money. But considering the fixed income, it's a lose to Joshua
• Whereas Sue is associated with fixed interest of mortgage. She is benefited because, though the inflation has changed the value of all other products, but the fixed interest rate does not change.
• "Fixed-rate mortgage holders are inflation winners", says "Thoma, professor of economics at the University of Oregon"