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4. A newspaper article once reported that the U.S. Economy was experiencing a low rate of inflation. It said that “low inflation has a downside: 45 million recipients of Social Security and other benefits will see their checks go up by just 2.8 percent next year.” A. Why does inflation affect the increase in Social Security and other benefits? Legislators wish to ensure that the real value of Social Security and other benefits stays constant over time. This is achieved by indexing benefits to the cost of living as measured by the consumer price index. With indexing, nominal benefits change at the same rate as prices. B. Is this effect a cost of inflation as the article suggests? Why or why not?
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