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Chapter 22: Q 30. (page 553)

Who in an economy is the big winner from inflation?

Short Answer

Expert verified

There are many people who will be benefitted from inflation.

Step by step solution

01

Step 1. Definition

Inflation is a situation in an economy when the average prices of all the goods and services increased because of some market pressures.

02

Step 2. Explanation

1. employers: employers pay the wages but they hire the employees before inflation on a fixed wage so they don鈥檛 have to worry about inflation and can get the work done on the same wages.

2. Borrowers: borrowers will be benefitted from the inflation as the rates on which they take loans will not increase because of inflation and they pay the loans with less interest as compared to the current inflation period. And the amount of loans that they have to pay remains the same instead of rising inflation.

03

Step 3.

The government will be benefitted most from the inflation because the government is the biggest borrower in the market.

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Most popular questions from this chapter

Name several forms of indexing in the private and

public sector.

What is deflation?

Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI.

If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bonds?

What has been a typical range of inflation in the U.S. economy in the last decade or so?
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