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Effects of Unanticipated Inflation

Evaluate as accurately as you can how each of the following individuals would be affected by unanticipated inflation of 10 percent per year:
a. A pensioned railroad worker
b. A department store clerk
c. A unionized automobile assembly line worker
d. A heavily indebted farmer
e. A retired business executive whose current income comes entirely from interest on government bonds
f. The owner of an independent small town department store

Solution Preview

a- The railroad worker's income from the railroad will decrease 10% from where it was. This won't change unless the worker has another form of income coming in, besides his/her work on the railroad. She/he will see a decrease in income due to the 10% per yr. inflation increase.

b- A dept. store clerk's income will also decrease by approximately 10% and would be in the same situation as the railroad worker. The increase in inflation will cause a decrease in total income unless the clerk has another source of income.

c- A unionized ...

Solution Summary

This solution explains in detail how each of the individuals listed would be affected by unanticipated inflation of 10 percent per year.

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