ECONOMICS
BUSINESS CYCLES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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creditors benefit; debtors lose
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creditors lose; debtors benefit
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Either A or B
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None of the above
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Detailed explanation-1: -During inflation the debtors gain and creditors lose.
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: -Right now, it’s mostly losers. Inflation benefits those with fixed-rate, low-interest mortgages and some stock investors. Individuals and families on a fixed income, holding variable interest rate debt are hurt the most by inflation.
Detailed explanation-4: -Key takeaways Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.
Detailed explanation-5: -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.