Question

Discuss the potential costs of inflation:

1.If you expected inflation to be 10% how might you factor this into your earnings or contract?

2.how might you potentially control for unanticipated inflation in your contract? how does the government control for unanticipated inflation in determining social security payments?

Answer 1

1)

Expected inflation has milder impact in term of wealth and income redistribution. Even potential adverse impacts can be easily addressed if inflation is correctly anticipated.

If expected inflation is 10 %, such inflation can be factored in earning or earning can be discounted appropriately or clause can be added to contract so that potential negative impacts are properly accounted for.

2)

Special clause can be added to contract when there are possibilities of unanticipated inflation.

Government social payments programs are flexible. Government keeps on adjusting and modifying its social security programs. Thus, government with minimum efforts changes these social security payments.