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Chapter 10: Problem 33

Traditionally, those hurt by inflation have been ______ a) creditors and people on fixed incomes b) debtors and people on fixed incomes c) debtors and creditors

Short Answer

Expert verified
a) creditors and people on fixed incomes

Step by step solution

01

Understand the impact of inflation on creditors

Inflation is the increase in the prices of goods and services over time. When inflation is high, the purchasing power of money decreases. Creditors are individuals or institutions that lend money to other parties. When there's inflation, the value of the money the creditors receive as payment decreases. So, because the purchasing power of the money they receive diminishes, creditors are hurt by inflation.
02

Understand the impact of inflation on people with fixed incomes

People with fixed incomes receive a set amount of money periodically, regardless of changes in the economy or inflation. When there's high inflation, the prices of goods and services increase, meaning that people with fixed incomes can buy fewer goods and services with their income. As the purchasing power diminishes, people with fixed incomes are also hurt by inflation.
03

Understand the impact of inflation on debtors

Debtors are individuals or institutions that borrow money from creditors. Inflation can be beneficial to them because the value of the money they return to the creditors decreases with inflation. As a result, they can pay back their debt with less valuable money, which is an advantage for them. So, debtors usually are not hurt by inflation. Using the analysis above, we can conclude that: Traditionally, those hurt by inflation have been: a) creditors and people on fixed incomes

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Most popular questions from this chapter

According to the Book of Genesis, Joseph may have been the first person to _____. a) forecast a business cycle b) collect unemployment insurance benefits c) formulate the misery index d) differentiate between demand-pull inflation and cost-push inflation

We have business cycles of _____. a) the same length and amplitude b) the same length but different amplitudes c) the same amplitude but different lengths d) different lengths and amplitudes

Which would be the most accurate statement? (LO7) a) Most business owners prefer deflation to inflation. b) In recent years Japan has suffered from deflation. c) Deflation is very likely in the United States over the next few years. d) Deflation is a form of disinflation.

Disinflation generally occurs during _____. a) recessions b) economic booms c) periods of hyperinflation d) times of deflation

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