Inflation

How can lenders be hurt and helped by inflation?

-money loaned is worth less when repaid -people need loans to make up for inflation -people take longer to pay debts

Economic Costs to Inflation

-shoe leather cost -unit of account cost -menu cost

Which type of GDP is impacted by inflation?

Nominal GDP

Who gains the most from inflation?

borrowers

Menu Cost

business adjust cost due to inflation

Shoe Leather Cost

cost of running around trying to avoid additional cost (comparative shopping)

Anticipated Inflation

expected and built into economic decisions

Who's the largest borrower in the economy?

government

Unit of Account Cost

inflation makes money a less reliable measurement

Crowding Out Effect

less money for other people to borrow

Why do borrowers gain?

money worth more when borrowed can offset inflation

Unanticipated Inflation

not expected or unforeseen causes redistribution of how people spend their money

Who's most hurt by inflation?

people who live on fixed incomes like social security or retirement (make the same amount of money when things cost more)

Inflation

rise in overall price levels (value of money is less)

Which type of GDP is not impacted by inflation?

Real GDP