Inflation's redistributive effect on fixed incomes

Steps:

• Define redistributive effect: Inflation shifts wealth between groups without changing total resources.
• Identify key impact: It erodes real value of fixed nominal incomes more than adjustable ones.
• Match to options: Check which describes unequal burden on income types.
• Select D: It directly shows loss for fixed-income holders versus gainers like debtors.

Why D is correct:

• Redistribution occurs as inflation reduces purchasing power of fixed incomes (e.g., pensions) while benefiting borrowers with fixed debts, per the Fisher equation where real income = nominal income / price level.

Why the others are wrong:

• A: Terms of trade relate to export/import prices, not inflation's wealth transfer.
• B: Reluctance to hold money is a shoe-leather cost, not redistributive.
• C: Price changes cause menu costs, an efficiency loss, not redistribution.

Final answer: D