Who is hurt and who

is helped by Inflation?
H = hurt
G = gains
U = uncertain

Be prepared to defend your

answer.
H = hurt
G = gains
U = uncertain
1. Banks extend many fixed-rate loans.
2. A farmer buys machinery with a fixed-rate

loan to be repaid over a 10 year period.

3. A family buys a new home with an adjustablerate mortgage.
4. A widow lives entirely on income from fixedrate corporate bonds.

 5. A retired couple lives entirely on income from

a pension the woman receives from her

former employer that includes a cost of living
adjustment (COLA).
6. A retired bank official lives entirely on income
from stock dividends.
7. The federal government has a five billion
dollar debt.

 8. A firm signs a contract to provide maintenance

services at a fixed rate for the next 5 years.

9. Your friend rents an apartment with a 3 year
lease.
10. Your parents put money for your college
education in a savings account at the bank.

1. Banks extend many

fixed-rate loans.
HURT
The

money the bank receives

for the loan repayment will be
less in real terms (purchasing
power) than the loan amount.

2. A farmer buys machinery with

a fixed-rate loan to be repaid
over a 10 year period.
GAINS
Farmer

makes payments that

are less in real terms than the
loan amount.

3. A family buys a new home

with an adjustable-rate mortgage.
UNCERTAIN

It depends on what happens to the future

interest rate relative to the inflation rate. If
the interest rate raises above the loan rate,
the family will be hurt. If the interest rate is
below the loan rate, the family will not have
to pay more.

4. A widow lives entirely on

income from fixed-rate corporate
bonds.
HURT
The

purchasing power of the

income will be less as inflation
continues to deflate the value of
the dollar.

5. A retired couple lives entirely on income from a

pension the woman receives from her former
employer that includes a cost of living adjustment
(COLA).

GAINS
The

purchasing power of the

pension payment will be higher
then the inflation rate because of
the COLA.

6. A retired bank official lives entirely

on income from stock dividends.
UNCERTAIN

It depends on the growth in stock

dividends relative to the inflation rate. In
general, stock dividends increase with
inflation while bond interest rates are fixed;
however, the increase does not have to
match the inflation rate.

7. The federal government has a

five billion dollar debt.
GAINS
The

government will repay the

debt with money that has less
purchasing power.

8. A firm signs a contract to provide

maintenance services at a fixed rate for the
next 5 years.

HURT
Revenue

from contract will be

worth less.

9. Your friend rents an apartment

with a 3 year lease.
GAINS
Rent

payments will be lower in

real terms.

10. Your parents put money for your college

education in a savings account at the bank.

UNCERTAIN
It

depends on the return on the

savings relative to the inflation
rate.

In Conclusion
Individuals who receive fixed incomes

are HURT by inflation

Lenders

and savers

People who make fixed payments

GAIN
borrowers