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HappinessA Revolution in Economics$
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Bruno S. Frey

Print publication date: 2008

Print ISBN-13: 9780262062770

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262062770.001.0001

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How Inflation and Inequality Affect Happiness

How Inflation and Inequality Affect Happiness

(p.55) 5 How Inflation and Inequality Affect Happiness

Bruno S. Frey

The MIT Press

Individuals who expect prices to increase can make the necessary adjustments with little, if any, cost. When price increases are unanticipated, however, they fail to adjust. Adjustment is more costly when increased inflation causes aggregate inflation and relative prices to be more variable. The welfare costs of rising prices can be estimated by computing the area under the money demand curve, an approach based on the idea that economizing on the use of currency imposes costs by reducing well-being. This chapter examines the effects of inflation and income inequality on happiness. It shows that Europe and the United States differ considerably with respect to the effect of income inequality on happiness.

Keywords:   inflation, income inequality, happiness, Europe, United States, prices, welfare costs, money, well-being

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