ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -People who have to repay their large debts will benefit from inflation. People who have fixed wages and have cash savings will be hurt from inflation. Inflation is a situation where the money will be able to buy fewer goods than it was able to do so as the value of money comes down.

Detailed explanation-2: -Inflation redistributes wealth from creditors to debtors i.e. lenders suffer and borrowers benefit out of inflation. Bondholders have lent money (to debtor) and received a bond in return. So he is a lender, he suffers (Debtor benefits from inflation).

Detailed explanation-3: -Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

Detailed explanation-4: -When the economy is not running at capacity, meaning there is unused labor or resources, inflation theoretically helps increase production. More dollars translates to more spending, which equates to more aggregated demand. More demand, in turn, triggers more production to meet that demand.

Detailed explanation-5: -Inflation brings most benefits to debtors because people seek more money from debtors in order to meet the increased prices of commodities.