What is one negative effect of inflation on individuals with fixed incomes?

What is one negative effect of inflation on individuals with fixed incomes?

• A. Increased purchasing power
• B. Easier planning for the future
• C. Higher difficulty in paying bills
• D. Lower interest rates

Answer: (C)

Inflation can significantly impact individuals on fixed incomes, such as retirees or those receiving a set salary that doesn’t adjust with rising prices. When inflation occurs, the general price level of goods and services increases, which means that the same amount of money buys fewer products than before. For individuals with a fixed income, their income does not increase to keep pace with rising costs, leading to a higher difficulty in paying bills. They may struggle to afford basic necessities like food, housing, and healthcare as prices rise while their income remains unchanged. In this context, the increase in living expenses directly diminishes their purchasing power, making it challenging to maintain their standard of living. In contrast, increased purchasing power would imply that individuals can buy more with their income, which is not the case during inflation. Planning for the future becomes more complex rather than easier, as it is hard to predict how rising prices will affect savings and spending. Lower interest rates can occur during certain economic conditions, but they do not directly relate to the struggles faced by fixed-income individuals during periods of inflation. Thus, the correct answer highlights a direct and negative consequence of inflation for those unable to adjust their income accordingly.

Inflation can significantly impact individuals on fixed incomes, such as retirees or those receiving a set salary that doesn’t adjust with rising prices. When inflation occurs, the general price level of goods and services increases, which means that the same amount of money buys fewer products than before.

For individuals with a fixed income, their income does not increase to keep pace with rising costs, leading to a higher difficulty in paying bills. They may struggle to afford basic necessities like food, housing, and healthcare as prices rise while their income remains unchanged. In this context, the increase in living expenses directly diminishes their purchasing power, making it challenging to maintain their standard of living.

In contrast, increased purchasing power would imply that individuals can buy more with their income, which is not the case during inflation. Planning for the future becomes more complex rather than easier, as it is hard to predict how rising prices will affect savings and spending. Lower interest rates can occur during certain economic conditions, but they do not directly relate to the struggles faced by fixed-income individuals during periods of inflation. Thus, the correct answer highlights a direct and negative consequence of inflation for those unable to adjust their income accordingly.