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Chapter 9: Q. 30 (page 243)

Who in an economy is the big winner from inflation?

Short Answer

Expert verified

The big winner from inflation in an economy is the borrower and the government being the biggest borrower benefits the most from inflation.

Step by step solution

01

Step 1. Meaning of inflation.

Inflation is a general and ongoing rise in price levels in an economy.

02

Step 2. Big winner from inflation in the economy.

The big winner from inflation in an economy is the borrower and the government being the biggest borrower benefits the most from inflation.

The rise in inflation will lead to higher income but the loan to be repaid remains the same. So, with rising in income, the borrower can repay the loan in less amount of time and will be better off.

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Most popular questions from this chapter

A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3%, what would likely happen to a homeowner with an adjustable-rate mortgage?

What is deflation?

Table 9.4 shows the fruit prices that the typical college student purchased from 2001 to 2004. What is the amount spent each year on the 鈥渂asket鈥� of fruit with the quantities shown in column 2?

If inflation rises unexpectedly by 5%, would a state government that had recently borrowed money to pay for a new highway benefit or lose?

Rosalie the Retiree knows that when she retires in 16years, her company will give her a one-time payment of \(20,000. However, if the inflation rate is 6%per year, how much buying power will that \)20,000have when measured in today鈥檚 dollars?
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