Answer to Question #121738 in Macroeconomics for Santos

Question

When inflation occurs who benefits more, creditors or debtors

Answer 1

During times of rising prices, debtors benefit and creditors lose. Debtors benefit since when prices rise, the value of money falls. Although debtors return the same amount of money, they pay less in terms of goods and services offered to them by creditors. This is for the reason that the value of money is less than when they borrowed the money. Thus the burden of the debt is reduced and debtors gain