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: -However, while higher inflation does erode the real value of nominal assets, such as demand deposits, it also lowers the real value of nominal liabilities, such as mortgages. So, borrowers directly benefit from unexpected inflation because they can pay back their loans in depreciated money.

Detailed explanation-3: -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-4: -When inflation is higher than expected, the borrower is better off, and the lender is worse off. The opposite effects occur if inflation is lower than expected: the borrower loses, and the lender wins.