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Question

What is inflation? Discuss the effects of inflation on 'fixed income groups'.

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Solution

Inflation: "A state in which the value of money is falling, i.e. price are rising." In other words, Inflation is a rise in price levels with additional characteristics or conditions. It is incompletely anticipated; it does not increase to further rises, it does not increase employment and real output; it is faster than some safe rate; it arises from the side of money, it is measured by prices net of indirect taxes and subsidies; and/or it is irreversible.
Effect of inflation on 'fixed income groups' - This includes pensioners, government servants, owners of government securities and promissory notes and others who get a fixed money income. They are known as rentiers. This class is worst affected by inflation because the purchasing power of their fixed income goes on decreasing with rising prices.


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