Inflation brings benefits to which one of the following?DebtorsGovernment pensionerSaving bank account holderCreditors (2024)

FAQs

Which one of the following benefits from inflation? ›

Answer and Explanation: A. Borrowers. Reason: The borrowers gain from inflation because, when inflation in the economy increases, the future value of money decreases.

Inflation brings most benefits to debtors because people seek more money from debtors in order to meet the increased prices of commodities.

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).

Inflation occurs when there is a general increase in the price of goods and services and a fall in purchasing power. This can benefit borrowers in that it allows them to repay debts with money that has depreciated in worth. However, it can also benefit lenders in that it raises prices and increases demand for credit.

Benefits of Inflation

When the economy is not running at capacity, meaning there is unused labor or resources, inflation theoretically helps increase production. More dollars translates to more spending, which equates to more aggregated demand. More demand, in turn, triggers more production to meet that demand.

In contrast, young, middle-class households are the largest winners from inflation in the U.S., because the real value of their substantial fixed-rate mortgage debt is eroded by inflation.

If the actual rate of inflation is lower than the rate projected a year earlier, both borrowers and lenders will benefit financially from inflation. If the actual rate of inflation is lower than the rate projected a year earlier, lenders will be harmed by inflation while borrowers will benefit from inflation.

Inflation erodes the purchasing power of a bond's future cash flows. Typically, bonds are fixed-rate investments. If inflation is increasing (or rising prices), the return on a bond is reduced in real terms, meaning adjusted for inflation.

Does inflation affect savings bonds? ›

The interest rate on a Series I savings bond changes every 6 months, based on inflation. The rate can go up. The rate can go down. I bonds earn interest until the first of these events: You cash in the bond or the bond reaches 30 years old.

Nominal bonds pay fixed interest payments based on the face value of the bond. These coupon payments do not adjust for changes in inflation. The market price of these nominal bonds fluctuates based on interest rates and overall market considerations. The yield on nominal bonds is fixed.

When inflation is high, the value of the dollar decreases, diminishing the buying power of your cash savings. This is because the price of goods and services increases, making everyday expenses more costly and impacting your cost of living.

As inflation falls, so do interest rates. It becomes less expensive to borrow money, thus there's more money circulating in the economy. Since supply remains relatively constant, demand for goods and services increases—thus increasing prices and inflation.

Yes, national debts affect inflation rates—but so do many other items.

Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.

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.