Question

Last year the country of Barboo had its prices increase by 200%. You work for the Barboo government as an economist and have been given the task to identify the sectors of Barboo’s population that are most adversely affected by this inflation. Which of the following group is probably the worst affected by inflation?
1) homeowners in Barboo with a 15 year fixed mortgage

2) retirees living on fixed pensions

3) workers with cost of living adjustment clause in their contracts

Answer 1

Inflation affects different people differently. This is because of the fall in the value of money. When price rises or the value of money falls, some groups of the society gain, some lose and some stand in-between. Broadly speaking, there are two economic groups in every society, the fixed income group and the flexible income group.

People belonging to the first group lose and those belonging to the second group gain. The reason is that the price movements in the case of different goods, services, assets, etc. are not uniform. When there is inflation, most prices are rising, but the rates of increase of individual prices differ much. Prices of some goods and services rise faster, of others slowly and of still others remain unchanged.

So on the basis of these factors as a economist I identify that retirees that living on fixed pension is probably wrost affected by inflation because pensioners with fixed pensions as their income remains the same but due to increase in the general price level their expenditure rises.

Power

The primary concern for retirees is how inflation affects their purchasing power. This is true even if inflation remains low because seniors are more likely than younger consumers to spend money on things that tend to increase in price, such as healthcare.

There are more example that made inflation wrost on older one with fixed price .They can't do extra work for extre spending.

A cost-of-living adjustment (COLA) is an increase made to Social Security and Supplemental Security Income to counteract the effects of inflation.So they are not wrost affected.

And fixed mortage price is not going to increase in inflation so they are not going to loose money in inflation.