A retired worker receives a pension that is not indexed to inflation.Which of the following will happen if the rate of inflation rises?
A) The retiree will be better off.
B) The retiree's purchasing power will fall.
C) The retiree's purchasing power will increase.
D) The shareholders of the firm she worked in will lose.

Question

Quizplus · Accepted Answer

If the rate of inflation rises, the purchasing power of the retiree's pension will decrease. Inflation causes the prices of goods and services to increase, while the value of the pension remains the same. Therefore, the retiree will be able to purchase fewer goods and services with their pension, leading to a decrease in their purchasing power.

A Retired Worker Receives a Pension That Is Not Indexed