ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Who benefits the MOST during periods of unexpected inflation?
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elderly on fixed incomes
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renters who live in a rent controlled apartment.
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banks who are collecting on loans with fixed interest rates
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banks who are collecting on loans with adjustable interest rates
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Explanation:
Detailed explanation-1: -Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.
Detailed explanation-2: -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-3: -Therefore, Debtors are the most benefitted from inflation.
Detailed explanation-4: -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).
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