economics question?

[mikej2390]

why might an increase in your nominal income not make you better off? Why does inflation impact some pople more than others?

[Joe J]

1- If prices of the goods/services you buy increase more than your nominal income, you might have a lower standard of living eventhough you have a higher income (it's not the increase of nominal income that hurts you, but the increase of everything else)
2- Not all prices necessarily increase by the same percentage at the same time... if you happen to buy more goods that increased a higher percentage than someone else, than you're more affected by inflation that this other person.

[Joe J]

1- If prices of the goods/services you buy increase more than your nominal income, you might have a lower standard of living eventhough you have a higher income (it's not the increase of nominal income that hurts you, but the increase of everything else)
2- Not all prices necessarily increase by the same percentage at the same time... if you happen to buy more goods that increased a higher percentage than someone else, than you're more affected by inflation that this other person.

[John M]

even during times of inflation, real prices don't necessarily rise on everything. Some responders have talked about inflation impacting the poor more, but I think they mean in terms of human suffering or distress. From a numbers standpoint, inflation is a rate and so its proportional to the amount of something that is purchased. We just don't tend to worry about people who's next mercedes costs them more, so much as we worry about people who have to pay more for a bus pass next month.

The people who lose the most money in inflationary times are those who hold assetts that have a fixed return, like a bond or a CD. People who owe money on a fixed interest rate, such as a student loan or a fixed rate home mortgage do better during inflation, because their paychecks tend to go up and the payments on the loans do not.

[John M]

even during times of inflation, real prices don't necessarily rise on everything. Some responders have talked about inflation impacting the poor more, but I think they mean in terms of human suffering or distress. From a numbers standpoint, inflation is a rate and so its proportional to the amount of something that is purchased. We just don't tend to worry about people who's next mercedes costs them more, so much as we worry about people who have to pay more for a bus pass next month.

The people who lose the most money in inflationary times are those who hold assetts that have a fixed return, like a bond or a CD. People who owe money on a fixed interest rate, such as a student loan or a fixed rate home mortgage do better during inflation, because their paychecks tend to go up and the payments on the loans do not.

[pitabread9390]

Because if you received a 5% pay raise and inflation rose 7% the same year you really lost 2% of real income lowering your purchasing power and your livelihood. Inflation hurts the lower class more because they have less money already so when their purchasing power goes down their screwed