Reference no: EM131244271
Review and respond to at least two of your classmates’ posts by sharing any ideas you may have about how households and businesses can protect themselves against inflation. Be sure to refer to concepts found in the reading when responding to your classmates.
Reading from
Amacher Ryan& Pate Jennifer Principle of Macroeconomics 2012 Bridgeport Education
Carol, J. (2013), Economics.
Please help with a response. Also, add reference.
Inflation works in the borrowers favor in most cases if the borrower had debt that was owed before inflation taking place. Inflation wouldn’t necessarily change the amount of debt that is owed, but it would increase the borrower's pay which makes it easier to pay off the debt.
In regards to lenders, they have a large opportunity to have things in their favor as well. For example, if Texas cost of living spiked and I had to spend more money to live here then I’d have less money to pay off my debt. If the cost of living was cheaper than I‘d have extra money to pay off the debt faster with less interest. If the cost of living were more expensive, then I’d have less money to pay my debt which means I’d be susceptible to increased interest rates over time.
The text states, “As more people shift to real assets in response to expected inflation, the increase in demand for those assets will drive their prices up even faster than the inflation rate.” (Amacher, 2012) Inflation can cause interest rates to go up on a home. A person mortgage tends to mirror high-interest rates. When a mortgage is too high, you may have fewer people who will get a loan for a home. When this happens, then the demand for homes will decrease, and the cost of homes will fall as well. Inflation plays a significant role in real assets such as homes.
Fixed-income households would struggle in the event of inflation because prices would increase. When prices rise unexpectedly, it forces a fixed-income family to struggle. The purchase of simple things such as bread, eggs, milk, and gas could be made difficult if prices increased.
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