Research Paper: Effects of Inflation

Sample Research Paper

Inflation acts as a disease affecting all parts of the economy at the same time.  It leads to a redistribution of wealth and income among different groups, and also a distortion in the relative prices and outputs of different goods, plus the output and employment for the economy as a whole (Samuelson and Nordhaus, 1998).  Retired folks and those living on fixed income experience that their standards of living must be reduced with the advent of inflation (Gerolamo, 1997).

However, those who owed money to entities that allowed them fixed interest rates, find that they now have to pay back less in value than before.  A man who borrowed $100,000 to buy a house with annual fixed interest rate mortgage payments of $10,000 – has to keep on paying the same amount in mortgage payments, even though inflation reduces the value of money.  Here, the creditor is the one at a loss, as inflation strikes the economy as a whole (Samuelson and Nordhaus).  Commercial banks that experience a decrease in value of bank loans do also see a loss in the value of depositors’ savings, of course (Gerolamo).

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