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.

Detailed explanation-2: -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-3: -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-4: -The most adversely affected groups by inflation is usually the wage earners in the informal sector with a specific wage rate and pensioners with fixed pensions as their income remains the same but due to increase in the general price level their expenditure rises.

Detailed explanation-5: -The correct answer is (a) Borrowers. Borrowers during inflation can pay less money to the lender than they originally borrowed. The purchasing power decreases during inflation, and this will benefit borrowers.