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Questions
How does inflation affect the distribution of income?
'Inflation is unjust.' Explain the statement clearly.
Explain how inflation affects the distribution of income.
Solution
- Inflation is unjust because it deepens the gap between the wealthy and the poor. It benefits the wealthiest at the expense of the poor. The poor have become poorer.
- Inflation affects income distribution by changing the purchasing power of various groups in society, typically helping some while damaging others.
- Usually, people on fixed incomes, such as retirees, pensioners, and wage earners with fixed wages, suffer since their income does not rise in line with inflation, leading their real income and purchasing power to fall.
- Individuals or enterprises that can adapt their pricing or wages in reaction to inflation, such as producers, business owners, and those with price-sensitive assets (such as real estate or stocks), may gain from rising prices.
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