Mr. Sad Class is correct, the school district board, in reality, wasn't that generous to him or his colleagues. Inflation causes a redistribution effect and the one Mr. Sad Class is experiencing is the income effect. The income effect is where people whose nominal income rises more slowly than the rate of inflation and they end up worse off. The rate of inflation is 5% where as the income increase was only 2%. Mr. Sad Class is still lower then the inflation rate and will be suffering because he has less real income.
Now with deflation and the falling of prices, we see a reversal as to who wins and who loses. If Mr. Sad Class had an income increase during a deflation, he would have gained more real income. In a deflation, Mr. Sad Class would
Now with deflation and the falling of prices, we see a reversal as to who wins and who loses. If Mr. Sad Class had an income increase during a deflation, he would have gained more real income. In a deflation, Mr. Sad Class would