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AP Macroeconomics Mea 1 H Explain the Costs That Unexpected Inflation Deflation Imposes on Individuals and the Economy Questions

Explain how unexpected inflation or deflation redistributes wealth between borrowers and lenders and affects people on fixed incomes.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • identify borrowers as winners and lenders as losers from unexpected inflation, with deflation reversing the result
  • compare actual with expected inflation to explain the real burden or return on a fixed-rate loan
  • explain how inflation reduces the purchasing power of fixed incomes and non-interest-bearing money

AP Macroeconomics Mea 1 H Explain the Costs That Unexpected Inflation Deflation Imposes on Individuals and the Economy Questions question 1

[Maximum number: 2]

The table provided shows the quantity and price of food and clothing, the only two goods produced and consumed in the country of Maltrose, in year 1 and year 2. Assume that year 1 is the base year.

Table for Question AP Macroeconomics Mea 1 H Explain the Costs That Unexpected Inflation Deflation Imposes on Individuals and the Economy Questions question 1 — AP Macroeconomics

Question (a)

(a)

Assuming that the expected inflation rate between years 1 and 2 was 3%, were each of the following better off, worse off, or unaffected as a result of the economic conditions between year 1 and year 2 ?

[ 2 ]

Question (i)

(i)

People living on a fixed income

[ 1 ]

Question (ii)

(ii)

Borrowers with fixed interest-rate loans. Explain.

Begin your response to this question at the top of a new page in the separate Free Response booklet and fill in the appropriate circle at the top of each page to indicate the question number.

[ 1 ]
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