Describe how this unexpectedly higher inflation rate would help or hurt the following.
a. A home owner with a fixed-rate mortgage
The home owner paying a fixed-rate mortgage would be hurt because he could have been paying a lower interest rate at 5% inflation.
b. A retiree who lives on a fixed pension income
A retiree who lives on a fixed pension would be disappointed because their pension would be less than what it had potential to be.
c. A college that has invested some of its endowment in government bonds
A college that has invested some of its endowment in government bonds would hurt them because the interest rate would be lower.
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Read more: Suppose that people expect inflation to equal 3%, but in fact prices rise by 5%?
