AP Macroeconomics Flashcards: Costs of Inflation
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
What is the key mechanism through which unexpected inflation creates costs?
The key mechanism is the arbitrary redistribution of wealth between different groups of individuals within the economy.
Card 1 of 10
All Flashcards (10)
What is the key mechanism through which unexpected inflation creates costs?
The key mechanism is the arbitrary redistribution of wealth between different groups of individuals within the economy.
How does unexpected inflation affect wealth between lenders and borrowers?
Unexpected inflation redistributes wealth from lenders to borrowers, as borrowers repay loans with money that is worth less than when it was originally borrowed.
Costs of Unexpected Inflation/Deflation
These are economic burdens imposed on individuals and the economy, most notably the arbitrary redistribution of wealth between groups.
Arbitrary Wealth Redistribution
This is a cost of unexpected inflation where wealth is shifted between groups, such as from lenders to borrowers, without being based on merit or prior agreement.
Does unexpected deflation also impose costs on the economy?
Yes, the provided text indicates that unexpected deflation, like unexpected inflation, imposes costs on individuals and the economy.
What is a primary cost of unexpected inflation?
A primary cost of unexpected inflation is that it arbitrarily redistributes wealth from one group of individuals to another.
In a loan agreement, who is negatively impacted by unexpected inflation?
Lenders are negatively impacted by unexpected inflation because the wealth is arbitrarily redistributed away from them.
If you are a borrower who took out a fixed-rate loan, how does unexpected inflation affect you?
As a borrower, unexpected inflation benefits you by arbitrarily redistributing wealth to you from the lender.
Who bears the costs imposed by unexpected inflation?
Unexpected inflation imposes costs on both individuals and the economy as a whole.
Explain why the wealth transfer from unexpected inflation is considered 'arbitrary'.
It is considered arbitrary because the redistribution of wealth from groups like lenders to borrowers happens by chance due to inflation, not as an intended outcome of their economic transaction.