00:01
Workers, firms, banks, and even other groups of people all have a great deal of interest in expected inflation.
00:10
The reason for this is because it affects things like real wages and real interest rates.
00:15
So even if nominal wages or nominal interest rates don't change, the real purchasing power of money will.
00:23
So this is going to affect employers, employees, borrowers, savers.
00:27
Let's think of one quick example.
00:30
An employee, i don't necessarily care just about how much i am getting paid nominally.
00:37
I care about how much the dollars i'm getting paid can actually purchase in goods and services because that's what affects my standard of living.
00:47
So if i expect a 5 % inflation rate next year, i will also want a 5 % raise.
00:56
And then that way i'll be able to maintain my standard of living...