Question

In each of following scenarios, explain and categorize the cost of inflation.

a. Because inflation has risen, the J. Crew clothing company decides to issue a new catalog monthly rather than quaterly.

b. Grandpa buys an annutity for $100,000 from an insurance company which promises to pat him $10,000 a year for the rest of his life. After buying it, he is surprised the high inflation triples the price level over next few yars.

c. Maria lives in an economy with hyperinflation. Each day after being paid, she runs to the store as quickly as possible so she can spend her money before is loses value.

d. Gita lives in an economy with an inflation rate of 10 percent. Over the past year, she earned a return of $50,000 on her million-dollar portfolio of stocks and bonds. Because her tax rate is 20 percent, she paid $10,000 to the government.

e. Your father tells you that when he was your age, he worked for only $4 an hour. He suggests that you are lucky to have a job that pays $9 an hour.

Answer 1