who is most hurt by inflation course hero

Does inflation hurt the poor the worst?

Our second assumption might be that the poor would be hurt the worst because they earn minimum wage and everything they buy is getting more expensive. However, if the minimum wage is indexed to inflation they would about break even. So interestingly if the minimum wage earners are also deep in debt inflation actually helps them.

Who is the biggest winner from inflation?

On a small scale lenders are the losers from inflation and borrowers are the winners but on a bigger scale the biggest beneficiary is the Government and the overall economy is the biggest loser. Other losers are those on fixed incomes and those who are priced out of the loan market. Connect with Tim on Google+.

Who is the biggest loser due to inflation?

On the other hand, the biggest losers due to inflation are those willing to lend money. An extreme example would be during the hyper-inflation of 1923 in Germany. If you had loaned a friend enough money to buy a car in early 1923 and he had repaid it at the end of 1923 you might have been able to buy a box of matches with it.

Who is the biggest beneficiary of inflation?

Interestingly the biggest debtor in the world is the US government and thus it is also the biggest beneficiary of inflation. And not coincidentally the Government is also the one who controls the money supply and thus inflation. In a way, inflation works as a hidden tax because the government borrows money from investors.

What are the disadvantages of inflation?

One big disadvantage of inflation is the fact that it discourages lending (smart banks need more interest to make up for the lost value). This prices some borrowers out of the market making loans too expensive. Inflation also makes planning for the future more difficult, so businesses are less likely to take risks.

Why does inflation work as a hidden tax?

In a way, inflation works as a hidden tax because the government borrows money from investors. It spends this valuable money and then gets to pay back its debt with cheaper dollars.

Is everyone affected equally by the minimum wage?

The fact of course is that everyone isn’t affected equally. Our second assumption might be that the poor would be hurt the worst because they earn minimum wage and everything they buy is getting more expensive. However, if the minimum wage is indexed to inflation they would about break even.