Unanticipated inflation benefits government because government is a large debtor. Unanticipated inflation benefits government because government gains tax revenue as nominal income increases. The increase' in nominal income pushes people into higher tax brackets. Some argue that the benefits of inflation decrease government's incentive to vigorously pursue anti-inflationary policies. C. Inflation and Net Exports 1.
Unanticipated inflation can cause net exports to fall.
Inflation makes goods produced in the United States relatively more expensive, resulting in a decrease in exports. Inflation makes goods produced abroad relatively less expensive, resulting in an increase in imports. D. Other Effects 1. As the inflation rate increases and becomes more variable, more resources may be devoted to predicting inflation and fewer devoted to the production of goods and services. As the inflation rate increases and becomes more variable, there may be speculation in real estate, gold, and art, caus'mg funds to flow away from investment in plant and equipment.