The household sectors are the creditor in nominal terms.
Due to inflation, they will have to incur menu cost because they have to devote more real resources to change their printed prices, rate list, vending machines, cash registers etc. Due to inflation of the real value of households the nominal creditor position is eroded.
How does it affect your investments and standard of living? Introduction and History Macroeconomics: Money And Banking Macroeconomics: Over the long term, unanticipated inflation can cause a number of problems for an economy.Chapter 7: 172-176, Unanticipated Inflation
Inflation is a key concept in macroeconomics, and a major concern for government policymakers, companies, workers and investors. During inflation, debtors will gain and creditors will lose.
During inflation with a fixed Rupee pension, the pensioner finds that his income can buy only a small fraction of what it did at retirement. Learn about the impact inflation can have on stock returns.
Related Articles. X pays less in real terms and Mr. The purchasing power of all claims or assets fixed in money terms decreases. The GDP deflator is a broader measure than the CPI, as it includes goods and services bought by businesses and governments.
Understanding the risks and likely rate of inflation can help investors craft a strategically, well-diversified retirement portfolio.
Economic Performance and Growth Macroeconomics: Inflation refers to a broad increase in prices across many goods and services in an economy over a sustained period of time. Sacrifice Ratio With Diagram. But if inflation is lower than expected, there is a loss to debtor.
During inflation, real value of assets fixed in nominal terms falls. The demand for currency falls.
This tutorial has the answers.