Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated?
A)A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per year, and the actual rate of inflation ends up being 7 percent per year.
B)A worker receives a raise in salary that is less than the rate of inflation because management underpredicted inflation.
C)Firms have to hire an extra worker to change prices in its store because of inflation.
D)A bank collects a lower amount of interest from a loan because inflation was underpredicted.
E)A professional pays more income taxes because tax brackets were not adjusted for inflation.

Question

Quizplus · Accepted Answer

Though inflation may lead to a rise in the cost of employment, such as hiring another worker to adjust prices in the store, this does not necessarily result in a redistribution of income. A and D are examples of inflation causing a redistribution of income because they involve contracts or loans with fixed payments that become inadequate when the rate of inflation is underpredicted. B and E are also examples of inflation causing a redistribution of income because they result in workers earning less in real terms or paying more taxes because tax brackets were not adjusted for inflation.

Which of the Following Is Not an Example of Inflation