The redistribution effect of inflation is as follows: first, inflation is not conducive to people living on fixed currency income. For the fixed income class, its income is a fixed amount of money, which lags behind the rise of price level. Their real income will decrease because of inflation, and their purchasing power per unit of income will decrease with the increase of price level. On the contrary, those who live on variable income will benefit from inflation. For example, business owners who earn income from profits can benefit from inflation. If the price of their products rises faster than the price of resources, then the income of enterprises will increase faster than the cost of their products. Second, inflation can redistribute income between debtors and creditors. Generally speaking, inflation benefits debtors at the expense of creditors.
The impact of inflation on output can be explained by various situations, and here are only two main situations.
The first situation: with the emergence of inflation, output increases. This is that the stimulus of demand-driven inflation has promoted the improvement of output level. Many economists have long insisted that moderate or slow demand will push up inflation and have an expanding effect on output and employment. Assume that the total demand increases and the economy recovers, resulting in a certain degree of demand-driven inflation. Under this condition, the price of products will run ahead of the price of wages and other resources, thus expanding the profits of enterprises. The increase in profits will stimulate enterprises to expand production, thus reducing unemployment and increasing national output. This situation means that the redistributive consequences of inflation will be offset by more employment and increased output. For example, for an unemployed worker, if he can only get employment opportunities under the condition of inflation, then obviously, he benefits from inflation.
The second situation: cost pushes inflation and leads to unemployment. What we are talking about here is the decline in output and employment caused by inflation. Assume that the economy has achieved full employment and price stability at the original level of total demand. If there is cost-driven inflation, then the actual number of products that the original total demand can buy will decrease. In other words, when the cost-driven pressure raises the price level, the established total demand can only support a small amount of actual output in the market. As a result, real output will fall and unemployment will rise.