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Unformatted text preview: Costs of Inflation
Part 1: Practice- Choose the most likely category for each of the following situations.
H = harmed by unanticipated inflation, B = benefits from unanticipated inflation, U = uncertain
1.
Hurley, a farmer, buys machinery with a fixed-rate loan to be repaid over seven years
2.
A bank lends money at a fixed interest rate
3 .
Jacob buys a new home with an adjustable-rate mortgage
4.
Ben's savings from his part-time job are in a savings account paying a fixed rate of interest.
5.
Sawyer's retirement income is earned from assets that pay a fixed rate of interest
6.
Jack signs a rental agreement to pay $1500 a month for an apartment for three years
7.
Kate, a retired bank robber, has put all her retirement money into stocks
8 .
H The federal government has a $21 trillion debt
. H A firm signs a contract to provide website consulting services at a fixed price for four years
10. _90% of a state's tax revenue is from income tax
11. Claire agrees to pay her parents back the price of college tuition after she graduates
12. Bank of America loaned $10 billion in fixed-rate loans for home mortgages
13. W Desmond puts money in his son's savings account paying .25% interest
Part 2: Check Your Understanding- Assume an economy is experiencing higher inflation which negatively
affects the following individuals. Choose the best category for each of the situations below.
Shoe Leather
Unit of
Situation
Menu Cost
Cost
Account Cost
14. Walmart must hire additional workers to replace
all the price tags on their products every week.
15. An attorney spends two hours each week
researching if her hourly rate is comparable to
V
other lawyers.
16. Each month your rent increases so you can't set
up an online automatic payment. You must
V
deliver the rent to your landlord in person.
17. A grandma increases the number of times she
goes to the grocery store.
18. The owner of a restaurant spends an extra two
hours a week creating and updating coupons.
19. You want to sell your car but you prefer to trade it
for something more tangible than cash....
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