What is inflation's effect on income?

Question

Quizplus · Accepted Answer

Inflation affects both the distribution and the total size of income. When prices increase, the cost of goods and services also increases, resulting in a decrease in the purchasing power of money. As a result, people on fixed incomes, such as those on a minimum wage or a fixed pension, will be worse off. In contrast, those who earn higher incomes may have more flexibility to weather inflationary pressures. Furthermore, inflation leads to a redistribution of income from those who hold money to those who produce goods and services, as people who produce goods and services can raise their prices in response to inflation. Therefore, inflation can affect the distribution of income as well as its total size.

What Is Inflation's Effect on Income