Question

Inflation is most harmful to what

Answer 1

Inflation would cause the most harms to: B. Creditors

When inflation occurs, the value of our currency would fall. This mean that if creditors loan other individuals a certain amount of money, the value that those creditors receive when the loan is returned would be lower compared to when they give the loan.

Answer 2

Inflation is most harmful to creditors.

Further explanation:

Inflation is the gradual rise in the prices of goods and services as a whole in the entire economy over a time period. Creditors lend the money to borrowers and if inflation occurs before repayment of the loan, they are on the losing side. Creditors in the phase of inflation get less in terms of goods and services as compared to what they could get in the phase of low prices. On the other hand, the debtors who have to repay the loan gain in the phase of inflation. They need to repay less in terms of goods and services in inflation phase than what they need to pay in no inflation time period.

Justification for the correct and incorrect answer:

a. debtors: This option is incorrect.

Debtors gain during inflation because they pay less in real terms to the lender in the phase of inflation. The same repayment amount of debtors could purchase less number of goods and services because inflation has reduced the value of money.

b. creditors: This option is correct.

Creditors lose during inflation as they are paid the repayment amount which could now buy less number of goods and services. They could be able to get more in no inflation time than during inflation time as the money loses value during inflation.

c. wage earners: This option is incorrect.

Wage-earners update their expectations in times of price change. During inflation, wage earners get less real wages and as a result, raise their expectations of nominal wage. They demand more nominal wages to get the same real income in the phase of inflation.  

d. property owners: This option is incorrect.

Property owners gain during inflation as their wealth that is the value of property grows with inflation. During inflation, the price of the property rises and the property owners get a chance to earn huge profits by selling the property at a high price.

Therefore, inflation is most harmful to creditors.

Learn more:

1. Learn more about minimum wages.

brainly.com/question/8729856

2. Learn more about inflation.

brainly.com/question/3370347

3. Learn more about the inflation rate and the economy.

brainly.com/question/3310349

Answer details:

Grade: Senior school

Subject: Economics

Chapter: Inflation  

Keywords: inflation, is more harmful to, what, debtors, creditors, wage earners, property owners, effects of inflation, real value, real wages, goods and services, inflation and economy, wage expectations, lenders, loans, harmful.