Directions
Determine if inflation hurts or helps the person or entity shown in bold in each situation.
1. A bank makes a fixed rate loan.
Answer: The bank is hurt since they will be paid back with money that is worth less.
2. A customer borrows money at a fixed rate.
Answer: The customer is helped since they will be able to pay the loan back with money that is worth less.
3. A farmer buys a new tractor at a fixed rate loan.
Answer: She is helped since she will pay the loan back with money that is worth less.
4. An elderly person lives on a fixed income.
Answer: She is hurt since her fixed income will be able to purchase less.
5.The government increases the national debt.
Answer: The government is helped since they can pay back the debt with money that is worth less.
6. You sign a contract to cut your neighbor's lawn at a fixed rate for the next two years.
Answer: You are hurt since the money you earn will be worth less.
7. A retired couple lives entirely on Social Security.
Answer: It's uncertain if the couple receives a COLA increase.
8. A retired couple lives entirely on a pension from their former company.
Answer: It's uncertain if the company gives a COLA increase.
9. You rent an apartment with a five year fixed lease.
Answer: You are helped since you can pay your rent with money that is worth less.
10. You put your money in a savings account at the bank.
Answer: You are hurt since the money will purchase less when you withdraw it in the future.