Question

Before he went to​ college, Jon bought a car from his brother Tony. They agreed that Jon would pay Tony​ $10,000 when Jon graduated from college. While Jon was at​ college, inflation was higher than expected. Thinking only about the car​ transaction, this unexpectedly high inflation was​ ________. A. good for both Jon and Tony B. good for Jon but bad for Tony C. bad for both Jon and Tony D. bad for Jon but good for Tony

Answer 1

Answer:

B. good for Jon but bad for Tony

Explanation:

Before he went to​ college, Jon bought a car from his brother Tony. They agreed that Jon would pay Tony​ $10,000 when Jon graduated from college. While Jon was at​ college, inflation was higher than expected. Thinking only about the car​ transaction, this unexpectedly high inflation was​ good for Jon but bad for Tony .

Generally, inflation favors borrowers and hurts lenders. Technically, Jon is owing Tony $10,000.

With an inflation rate of 5% the value of that money depreciates to 95% of its real value because inflation rate depletes the real rate of money and is the biggest factor of lose of monetary value.

The money that Jon will eventually pay Tony will be lesser in value which is good for Jon and bad for Tony.