MindTapCengage Learning GChegg Study i aided Solti x Link t

,?MindTap-Cengage Learning GChegg Study i aided Solti? x × ?Link to Pubisher Materials-2 e C Secure https/ing.cengage ld-557259190158197055341954258elSBN 97813056500918sna MINDTAP .. Aplia Homework: Unemployment and Infiation c Rack to Assignment Average: /2 6. The effects of inflation Friendly Airlines is considering signing a long-term contract with the union representing its plots. Friendly Airlines and the union both agree Suppose that real wages should increase by 3%. Inflation is expected to be 6%, so they agree on a 9% nominal wage increase. tne union and- Friendy Airlines Now, suppose inflation turns out to be higher than expected, coming nat 7%. This would- because the real wage increase would now beY ? union and Because of uncertainty about future inflation, the union devotes a large quantity of resources to monitoring inflation financial position. This illustrates the fact that indicators in order to maximize its Infation obscures relative price changes Inflation harms lenders and helps borrowers Variable inflation is associated with high transaction costs ave&Continue; Continus without saving 30 2 3 4 5 6

Solution

As the inflation is 7% now instead of expected 6%. This would \"harm/ negatively affect \" the union and \"benefit\" the friendly airlines because the real wage increase would be only \"2%\".

This illustrates the fact that \"Variable inflation is associated with high transaction cost\".