Which of the following is correct?
A)inflation will always increase the real income.
B)inflation does not affect the distribution of income.
C)the redistribution effects of inflation does not depend upon expectation.
D)the redistribution effects of inflation depends upon whether or not it is expected.

Question

Quizplus · Accepted Answer

The redistribution effects of inflation depend upon whether or not it is expected. When inflation is unexpected, it can lead to a redistribution of income and wealth from lenders to borrowers, and from those on fixed incomes to those with the ability to adjust prices and wages. However, when inflation is expected, individuals and institutions can adjust their behavior to mitigate these effects.

Which of the Following Is Correct