Inflation's redistributive impact on income groups

Steps:

• Define redistributive effect: Inflation shifts wealth between groups without changing total output.
• Identify key mechanism: Rising prices erode real value of money for those unable to adjust incomes.
• Link to fixed incomes: People on pensions or fixed wages lose purchasing power, benefiting debtors.
• Match to options: Select the one describing this unequal burden.

Why D is correct:

• Inflation redistributes income by reducing real value of fixed nominal incomes, as purchasing power falls while prices rise (per quantity theory of money, MV = PY).

Why the others are wrong:

• A: Relates to international trade shifts, not domestic redistribution.
• B: Similar to A, affects export/import balances, not income groups.
• C: Describes menu costs or shoe-leather costs, which are inefficiencies, not redistribution.

Final answer: D