ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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-2: -The opposite effects occur if inflation is lower than expected: the borrower loses, and the lender wins. The possibility that the inflation rate will turn out to be unexpectedly high or unexpectedly low means that there is uncertainty whenever people sign loan contracts.

Detailed explanation-3: -Collectors. Historically, collectibles like fine art, wine, or baseball cards can benefit from inflationary periods as the dollar loses purchasing power. During high inflation, investors often turn to hard assets that are more likely to retain their value through market volatility.

Detailed explanation-4: -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.