Those who suffer the least from inflation. PR11. Socio-economic consequences of inflation. Demand inflation results in

The consequence of unanticipated inflation is arbitrary redistribution of income and wealth (arbitrary redistribution of wealth). It enriches some economic agents and impoverishes others. Income and wealth move:

• from creditors to debtors. The lender provides a loan at a nominal interest rate, based on the amount of real income that he wants to receive (the real interest rate) and the expected inflation rate (R = r + e). So, for example, wishing to receive a real income of 5% and assuming that the inflation rate will be 10%, the lender will set a nominal interest rate of 15% (5% + 10%). If the actual inflation rate is 15% instead of the expected 10%, the lender will not receive any real income (r = 15 - 15 = 0), and if the inflation rate is 18%, then an income equal to 3% (r = 15 - 18 = - 3) will move from the creditor to the debtor. Therefore, during periods of unexpected inflation, it is very profitable to take loans and it is unprofitable to give them.

So n windfall inflation works as a tax on future earnings and as a subsidy on future payments. Therefore, if inflation turns out to be higher than expected at the time the loan contract was signed, the recipient of future payments (the lender) is worse off because he will receive money with a lower purchasing power than what he agreed upon when signing the contract. The person who borrowed the money (the borrower) is better off because he was able to use the money when it had a higher value and he was allowed to repay the debt with money of a lower value. When inflation is higher than expected, wealth is redistributed from lenders to borrowers. When inflation is lower than expected, winners and losers switch places.

Since, as already noted, the general formula for the real interest rate, applicable at any rate of inflation:

we must distinguish between the real interest rate ex ante and the real interest rate ex post. The above formula is the ex ante real interest rate formula. Real interest rate ex ante counts get a lender by providing a loan, so it is determined by the value expected inflation rate (e). Real ex post rate is the real income receives lender when repaying a loan, so it is determined actual inflation rate ( actual) and can be calculated using the formula:

• from workers to firms. The assertion that windfall inflation works as a tax on future earnings and as a subsidy on future payments applies to any contract that continues in time, including a labor contract. When inflation is higher than expected, those who receive the money in the future (workers) suffer losses and those who pay (firms) benefit. Therefore, firms benefit at the expense of workers when inflation is greater than expected. When inflation is less than expected, winners and losers switch places.
• from people with fixed incomes to people with non-fixed incomes

People with fixed incomes (for example, government employees, and people living on transfer payments) cannot take steps to increase their nominal incomes, and during periods of unforeseen inflation (unless income indexation is carried out), their real incomes fall rapidly. People with non-fixed incomes have the ability to increase their nominal incomes in line with the rate of inflation, so their real incomes may not decrease or even increase.

• from people who have savings in cash to people who do not have

savings. The real value of savings falls as inflation rises, so the real wealth of those who have it in monetary form decreases.

• from the elderly to the young. The elderly suffer from unanticipated inflation in

to the greatest extent, since, on the one hand, they receive fixed incomes, and, on the other hand, they usually have savings in cash. Young people, having the opportunity to increase their nominal incomes and not having money savings, suffer the least.

• from all economic agents with cash to the state. The entire population suffers to some extent from unforeseen inflation.

The only economic agent that gets rich is the state. By issuing additional money into circulation (by issuing money), the state thereby establishes, as already noted, a kind of cash tax, which is called seigniorage. The state buys goods and services, and pays with depreciating money, i.e. money, the purchasing power of which is the lower, the more additional money is put into circulation. The difference between the purchasing power of money before and after issuance is the state's income from inflation - seigniorage.

The most serious and destructive consequences It has hyperinflation, which results in:

1) to the collapse of the financial system (money ceases to matter and there is a transition to barter);

2) to the destruction of welfare (real incomes are catastrophically reduced);

3) to the violation and destruction of the investment mechanism (investments in production have a long payback period and are ineffective in the face of a rapid depreciation of money). The reason for hyperinflation is a huge increase in the money supply in order to finance state budget expenditures at the expense of seigniorage, which is associated either with wars or with the inability to finance a large budget deficit in other ways (non-inflationary, i.e., non-emission methods).

The consequence of unanticipated inflation is an arbitrary redistribution of wealth. It enriches some economic agents and impoverishes others. Income and wealth move:

From creditors to debtors. The lender provides a loan at a nominal interest rate, based on the amount of real income that he wants to receive (the real interest rate) and the expected inflation rate (R = r + ?e). So, for example, wishing to receive a real income of 5% and assuming that the inflation rate will be 10%, the lender will set a nominal interest rate of 15% (5% + 10%). If the actual inflation rate is 15% instead of the expected 10%, the lender will not receive any real income (r = 15 - 15 = 0), and if the inflation rate is 18%, then an income equal to 3% (r = 15 - 18 = - 3) will move from the creditor to the debtor. Therefore, during periods of unexpected inflation, it is very profitable to take loans and it is unprofitable to give them.

Thus, windfall inflation works both as a tax on future earnings and as a subsidy for future payments. Therefore, if inflation turns out to be higher than expected at the time the loan contract was signed, the recipient of future payments (the lender) is worse off because he will receive money with a lower purchasing power than what he agreed upon when signing the contract. The person who borrowed the money (the borrower) is better off because he was able to use the money when it had a higher value and he was allowed to repay the debt with money of a lower value. When inflation is higher than expected, wealth is redistributed from lenders to borrowers. When inflation is lower than expected, winners and losers switch places.

Since, as already noted, the general formula for the real interest rate, applicable at any rate of inflation:

then one should distinguish between the ex ante real interest rate and the ex post real interest rate. The above formula is the ex ante real interest rate formula. The ex ante real interest rate is the real return that the lender expects to receive by providing a loan, so it is determined by the expected inflation rate (πe). The real ex post rate is the real income that the lender receives when repaying the loan, so it is determined by the actual inflation rate (π actual) and can be calculated using the formula:

From workers to firms. The assertion that windfall inflation works as a tax on future earnings and as a subsidy on future payments applies to any contract that continues in time, including a labor contract. When inflation is higher than expected, those who receive the money in the future (workers) suffer losses and those who pay (firms) benefit. Therefore, firms benefit at the expense of workers when inflation is greater than expected. When inflation is less than expected, winners and losers switch places.

From people with fixed incomes to people with non-fixed incomes People with fixed incomes (for example, government employees, as well as people living on transfer payments) cannot take steps to increase their nominal income, and during periods of unforeseen inflation (if income indexation is not carried out ) their real incomes are falling rapidly. People with non-fixed incomes have the ability to increase their nominal incomes in line with the rate of inflation, so their real incomes may not decrease or even increase.

From people who have savings in cash to people who do not have savings. The real value of savings falls as inflation rises, so the real wealth of those who have it in monetary form decreases.

From the elderly to the young. The elderly suffer the most from unforeseen inflation because, on the one hand, they receive fixed incomes, and, on the other hand, they usually have cash savings. Young people, having the opportunity to increase their nominal incomes and not having money savings, suffer the least.

From all economic agents with cash to the state. The entire population suffers to some extent from unforeseen inflation.

The only economic agent that gets rich is the state. By issuing additional money into circulation (by issuing money), the state thereby establishes, as already noted, a kind of tax on cash, which is called seigniorage. The state buys goods and services, and pays with depreciating money, i.e. money, the purchasing power of which is the lower, the more additional money is put into circulation. The difference between the purchasing power of money before and after issuance is the state's income from inflation - seigniorage.

The most serious and devastating consequences are hyperinflation, which leads to:

1. to the collapse of the financial system (money ceases to matter and there is a transition to barter);

2. to the destruction of welfare (real incomes are catastrophically reduced);

3. to the violation and destruction of the investment mechanism (investments in production have a long payback period and are ineffective in the face of a rapid depreciation of money). The reason for hyperinflation is a huge increase in the money supply in order to finance state budget expenditures at the expense of seigniorage, which is associated either with wars or with the inability to finance a large budget deficit in other ways (non-inflationary, i.e., non-emission methods).

The consequence of unanticipated inflation is arbitrary redistribution of income and wealth (arbitrary redistribution of wealth). It enriches some economic agents and impoverishes others. Income and wealth move:

· from creditors to debtors. The lender provides a loan at a nominal interest rate based on the amount of real income that he wants to receive (the real interest rate) and the expected inflation rate (R = r + p e). So, for example, wishing to receive a real income of 5% and assuming that the inflation rate will be 10%, the lender will set a nominal interest rate of 15% (5% + 10%). If the actual inflation rate is 15% instead of the expected 10%, the lender will not receive any real income (r = 15 - 15 = 0), and if the inflation rate is 18%, then an income equal to 3% (r = 15 - 18 = - 3) will move from the creditor to the debtor. Therefore, during periods of unexpected inflation, it is very profitable to take loans and it is unprofitable to give them.

So n windfall inflation works as a tax on future earnings and as a subsidy on future payments. Therefore, if inflation turns out to be higher than expected at the time the loan contract was signed, the recipient of future payments (the lender) is worse off because he will receive money with a lower purchasing power than what he agreed upon when signing the contract. The person who borrowed the money (the borrower) is better off because he was able to use the money when it had a higher value and he was allowed to repay the debt with money of a lower value. When inflation is higher than expected, wealth is redistributed from lenders to borrowers. When inflation is lower than expected, winners and losers switch places.

Since, as already noted, the general formula for the real interest rate, applicable at any rate of inflation:

we must distinguish between the real interest rate ex ante and the real interest rate ex post. The above formula is the ex ante real interest rate formula. Real interest rate ex ante counts get a lender by providing a loan, so it is determined by the value expected inflation rate (pe). Real ex post rate is the real income receives lender when repaying a loan, so it is determined actual inflation rate (p actual) and can be calculated using the formula:

· from workers to firms. The assertion that windfall inflation works as a tax on future earnings and as a subsidy on future payments applies to any contract that continues in time, including a labor contract. When inflation is higher than expected, those who receive the money in the future (workers) suffer losses and those who pay (firms) benefit. Therefore, firms benefit at the expense of workers when inflation is greater than expected. When inflation is less than expected, winners and losers switch places.

· from people with fixed incomes to people with non-fixed incomes

People with fixed incomes (for example, government employees, and people living on transfer payments) cannot take steps to increase their nominal incomes, and during periods of unforeseen inflation (unless income indexation is carried out), their real incomes fall rapidly. People with non-fixed incomes have the ability to increase their nominal incomes in line with the rate of inflation, so their real incomes may not decrease or even increase.

· from people who have savings in cash to people who do not have

savings. The real value of savings falls as inflation rises, so the real wealth of those who have it in monetary form decreases.

· from the elderly to the young. The elderly suffer from unanticipated inflation in

to the greatest extent, since, on the one hand, they receive fixed incomes, and, on the other hand, they usually have savings in cash. Young people, having the opportunity to increase their nominal incomes and not having money savings, suffer the least.

· from all economic agents with cash to the state. The entire population suffers to some extent from unforeseen inflation.

The only economic agent that gets rich is the state. By issuing additional money into circulation (by issuing money), the state thereby establishes, as already noted, a kind of cash tax, which is called seigniorage. The state buys goods and services, and pays with depreciating money, i.e. money, the purchasing power of which is the lower, the more additional money is put into circulation. The difference between the purchasing power of money before and after issuance is the state's income from inflation - seigniorage.

The most serious and destructive consequences It has hyperinflation, which results in:

1) to the collapse of the financial system (money ceases to matter and there is a transition to barter);

2) to the destruction of welfare (real incomes are catastrophically reduced);

3) to the violation and destruction of the investment mechanism (investments in production have a long payback period and are ineffective in the face of a rapid depreciation of money). The reason for hyperinflation is a huge increase in the money supply in order to finance state budget expenditures at the expense of seigniorage, which is associated either with wars or with the inability to finance a large budget deficit in other ways (non-inflationary, i.e., non-emission methods).

Choose one answer:

Correct answer: -8%

Question 8

Those least affected by unanticipated inflation are:

Choose one answer:

a. whose nominal incomes rise but more slowly than the price level rises

b. who has savings

c. who became a debtor when prices were lower

d. who receives a fixed nominal income

Correct answer: who became a debtor when prices were lower

Question 9

Demand inflation results in:

Choose one answer:

a. rising prices and falling real output

b. all answers are wrong

c. rising prices and rising employment

d. rising prices and rising unemployment

Correct Answer: rising prices and rising employment

Question 10

During a period of cost-driven inflation, nominal GDP rises:

Choose one answer:

a. nothing definite can be said

b. slower than real GDP

c. at the same rate as real GDP

d. faster than real GDP

Correct Answer: Nothing definite

Question 11

An intermediate segment on the aggregate supply curve:

Choose one answer:

a. represented by a vertical line

b. represented by a horizontal line

c. has a positive slope

d. has a negative slope

Correct Answer: has a positive slope

Question 12

The central bank is pursuing a stabilization policy to offset the decline in output resulting from the supply shock. Which point on the graph reflects the state of the economy after the stabilization policy.

Choose one answer:

a. point A

c. point C

Correct answer: point D

Question 13

The decline in GDP while maintaining the price level classical model explains:

Choose one answer:

a. an increase in aggregate demand with a decrease in potential GDP

b. an increase in aggregate demand with a constant potential GDP

c. increase in potential GDP with unchanged aggregate demand

d. a simultaneous decrease in aggregate demand and potential GDP

Correct answer: simultaneous decrease in aggregate demand and potential GDP

Question 14

The long-term consequences of an increase in the money supply are:

Choose one answer:

a. an increase in the price level without a change in output

b. to increase output without changing the price level

c. parallel rise in prices and output

d. no change in both the price level and the volume of output

Correct Answer: An increase in the price level without a change in output

Question 15

Movement along the AD curve is the result of:

Choose one answer:

a. effect of real cash balances

b. interest rate effect

c. effect of import purchases

d. all answers are correct

Correct Answer: All answers are correct

Question 16

The volume of consumer spending in a country depends on:

Choose one answer:

a. from the growth rate of the money supply

b. from the consumer's place of residence

c. by age of family members

d. on the level of disposable income

Correct Answer: Disposable income

Question 17

If people do not spend all their income on consumption and put the unspent amount in the bank, then they:

Choose one answer:

a. save, but invest part of the savings, which is used to buy securities

b. and save and invest

c. investing but not saving

d. saving but not investing

Correct Answer: Saving but not investing

Question 18

If the real interest rate increases, then:

Choose one answer:

a. the investment demand curve will shift to the right

b. the investment demand curve will shift up

c. all answers are wrong

d. the investment demand curve will shift to the left

Correct Answer: All answers are wrong

Question 19

The relationship between the marginal propensity to consume and saving is that:

Choose one answer:

a. their sum is less than 1

b. no right answer

c. the ratio between them characterizes the average propensity to consume

d. their sum is 0

Correct Answer: No correct answer

Question 20

If the amount of disposable income in a given country increases, then:

Choose one answer:

a. the average propensity to consume and save increases

b. the average propensity to consume and save decreases

c. the average propensity to consume increases and the average propensity to save decreases

d. The average propensity to consume decreases and the average propensity to save increases

Correct Answer: The average propensity to consume is decreasing and saving is increasing.

Question 21

An increase in aggregate demand caused by an increase in government spending:

Choose one answer:

a. increases income in the long run, but not in the short run

b. increases prices in the short run but not in the long run

c. increases income in the short run but not in the long run

d. increases income and prices in the long run

Correct Answer: Increases income in the short run but not in the long run

Question 22

All of the following can act as an automatic stabilizer for the economy, except:

Choose one answer:

a. social security systems

b. income tax

c. discretionary changes in taxation

d. systems of participation of workers in the distribution of profits

Correct Answer: Worker Sharing Profit Sharing Systems

Question 23

Government spending increased by 1 million rubles, the equilibrium level of income:

Choose one answer:

a. increased by 5 million rubles.

b. remained unchanged

c. decreased by 4 million rubles.

d. increased by 1 million rubles.

Correct answer: increased by 5 million rubles.

Question 24

The consumption function has the form С = 100 +0.8 (У-Т).

Taxes were reduced by 1 million rubles, the equilibrium level of income:

Choose one answer:

a. increased by 4 million rubles.

b. decreased by 5 million rubles.

c. increased by 5 million rubles.

d. decreased by 4 million rubles.

Correct answer: increased by 4 million rubles.

Question 25

The following data is available:

Income (Y) =5000;

Consumption (C) =3200;

Investment (I) =900;

Government spending (G) =1000;

Taxes (T) =900/

The government budget deficit is: