What is Inflation? Video
Nominal Interest Rate- % increase in money the borrower must pay the lender for a loan. Not adjusted for inflation. =(Expected Interest Rate + Inflation Premium)
>Anticipated Inflation
>Fisher Effect
Real Interest Rate- % increase in purchasing power the bower must pay the lender for a loan. Adjusted for inflation. =(Nominal Interest rate- Inflation)
Hurt By inflation
Savers
Creditors/ Lenders
Those on a fixed income( Elderly, Welfare, Medicare, Medicaid, Social Security)
Helped By Inflation
Debtors
COLA- Cost of living Adjustment. Gives automatic wage increases when inflation occurs. Cali+NY get adjustment due standard of living.
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