Question: In a sentence or two, evaluate the accuracy of the following statement, including a clear and precise statement of historical comparison: Inflation in the United States last year was 0%. This is close to the historical level. 6. Wage agreements and loan contracts are two types of multi-period agreements that are important for economic growth. Suppose you sign a two-year job contract with Wells-Fargo stipulating that you will receive an annual salary of $93,500 plus an additional 2% over that in the second year to account for expected inflation.
a. If the inflation rate turns out to be 3% rather than 2%, who will be hurt by this? Why?
b. If the inflation rate turns out to be 1% rather than 2%, who will be hurt by this? Why? Suppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%.
c. If the inflation rate turns out to be 3% rather than 2%, who will be hurt by this? Why?
d. If the inflation rate turns out to be 3% rather than 2%, who will be helped by this? Why?