Author Question: Macroeconomics (Read 13 times)

rosemere1990

  • Newbie
  • *
  • Posts: 6
on: Dec 4, 2019
How does inflation affect the purchasing power of someone on a fixed income?  When considering retirement, why might a pension plan indexed to the CPI be preferable?   



Celeste

  • Hero Member
  • Posts: 579
Reply #1 on: Dec 4, 2019
On a fixed income, or salary, inflation makes purchasing commodities more difficult simply due to cost increases. For example, if the cost of groceries increased by 2 to 4%, and the amount spent per month is $1,000, this suggests that in a month, a family could be spending $40 more than they would normally. Multiplying this by 12, that's a total of $480. Anyone paying for insurance, mortgage, or energy bills will have a hard time coping with these changes if they happen year to year. Inflation will happen, but it has to be a reasonable increase because otherwise their current job will not be enough for living expenses.

A retirement plan indexed to the CPI is best because if hyperinflation occurs, their savings will reflect the consumer price index. This will not harm them if they were planning on using a fixed sum every month, for example.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Hip fractures are the most serious consequences of osteoporosis. The incidence of hip fractures increases with each decade among patients in their 60s to patients in their 90s for both women and men of all populations. Men and women older than 80 years of age show the highest incidence of hip fractures.

Did you know?

IgA antibodies protect body surfaces exposed to outside foreign substances. IgG antibodies are found in all body fluids. IgM antibodies are the first type of antibody made in response to an infection. IgE antibody levels are often high in people with allergies. IgD antibodies are found in tissues lining the abdomen and chest.

Did you know?

Your chance of developing a kidney stone is 1 in 10. In recent years, approximately 3.7 million people in the United States were diagnosed with a kidney disease.

Did you know?

No drugs are available to relieve parathyroid disease. Parathyroid disease is caused by a parathyroid tumor, and it needs to be removed by surgery.

Did you know?

Tobacco depletes the body of vitamins A, C, and E, which can result in any of the following: dry hair, dry skin, dry eyes, poor growth, night blindness, abscesses, insomnia, fatigue, reproductive system problems, sinusitis, pneumonia, frequent respiratory problems, skin disorders, weight loss, rickets, osteomalacia, nervousness, muscle spasms, leg cramps, extremity numbness, bone malformations, decayed teeth, difficulty in walking, irritability, restlessness, profuse sweating, increased uric acid (gout), joint damage, damaged red blood cells, destruction of nerves, infertility, miscarriage, and many types of cancer.

For a complete list of videos, visit our video library