Effects of inflation (1 Viewer)

[-pari-]

i dont get why inflation hurts lower-income earners more than higher income earners.

is it because:

higher income earners tend to spend a lower proportion of their incomes, so they have a higher proportion of their incomes 'left' -unspent

(?)

help ?

 

[Kujah]

Correct me if im wrong. Higher inflation equals an increase in the value of goods and services and a loss in the value of money. Taken into account that a high earner earns more than a low income earner, a low income earner would have to spend more to afford more goods.

 

[Sparcod]

Lower-income earners spend more of their money whilst the higher tend to save most of it. The higher the income, the lower the MPC.

 

[Sparcod]

i dont get why inflation hurts lower-income earners more than higher income earners.

I'll also add this.
-Lower income earners are less likely to get high wage increases compared to everyone else. This means their real wages are relatively lower in times of inflation.
-Also, higher income earners have more assets such as real estate which rise in value quickly during inflation times. That's all.

 

[-pari-]

^^ yeah...so they're effected less basically because they spend (proportionately) less and hence have more saved...?

Higher inflation equals an increase in the value of goods and services and a loss in the value of money

not sure what you mean by "value" but yes it increases the price of goods

 

[-pari-]

aaahhh riiighht...yeah i get it. i was thinking something more directly related to their level of incomes...
but yeah...thanks

 

[ilovecommunism]

回覆: Re: Effects of inflation

in general, inflation can lead to a deterioration in the distribution of income

and another reason why low income earners have to spend more is because of the CPI. the CPI generally measures the prices of consumer goods and services according to their significance for the average Aussie households (it's the definition in the book), which means it measures the level of inflation by measuring the prices of some necessities or things important in people's daily activities. So, oncethe CPI increases , or in other words, the prices of those necessities increase, people's spending on those things will also increase (b'cause they have to spend money on those things, I don't think anyone can live without food...lol). So, yeah, that generally means that low income earners will spend a higher proportion of their incomes on these necessities while the pace of the increase of their wages can not match the pace of the increase in prices.