Instructions: 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
further instructor expectations; Reference
Please help with a response to the following:
“Government tries to restrain from inflation because it causes an unintended and undesirable redistribution of income and wealth” (Amacher,Pate 2012). That is when a lender who is in the driver’s seat when providing a loan to a person can charge a low interest rate to entice people to borrow money at that low rate. Now if the Feds were to raise the interest rate even a quarter of a percent this could turn the tables from the lender over to the borrower. In the first scenario the Lender will make a small profit over the long term with the low interest rates. If the nation interest rate increases, the value of the dollar goes down and the Lender ends up making less back than they loaned. This causes the redistribution of the income to favor the borrower.
Once inflation starts to happen it is a trickle down affect to the consumer in the long run. Eventually the consumer will start to pay inflated rates in some way through goods and services they purchase. Those that are on fixed incomes this will adversely affect because as their income does not increase but the cost of goods do, they will have to find ways to cut their spending in order to make ends meet. This could be doing without eating out as often, buying cheaper and less quality foods or shopping at lower quality stores just to save the extra dollars that the inflation has cost them. People who are on fixed incomes have to become more creative in order to still enjoy some qualities in life when times get tight.