Question

True, False, Why? a. A labor contract indexed to inflation protects us against rising inflation in the future thus, other things equal, it ensures that our standard of living remain constant over time. True, False, Why? b. Higher unexpected inflation benefits borrowers but harm lenders

Answer 1

(a).ans.. True

it is true true because due to inflation the price level rises which increases the prices of goods and services in the economy which ultimately affects the standard of living of the people. But a labor contract indexed to inflation provides an extra amount of money which is nececessary to eliminate the affect of inflation.

(b).Ans..True

Higher unexpected inflation benefits borrowers because the money that the borrowers have to pay to the lenders has the value less  than they borrowed and it harms the lenders because the money that they get back from the borrowers has less purchasing power that before.