30th June 2020

khanacademy
18

Who is helped or hurt by unanticipated inflation?

Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

Thereof, who loses from unanticipated inflation Who benefits?

Creditors are the ones who lose from unanticipated inflation because both the principal on loans and interest payments they receive are usually fixed. Debtors benefit from unanticipated inflation because the value of their payments declines as their wages rise with inflation.

One may also ask, are debtors helped by inflation?

One important redistribution of income and wealth that occurs during unanticipated inflation is the redistribution between debtors and creditors. a. Debtors gain from inflation because they repay creditors with dollars that are worth less in terms of purchasing power.

Why are creditors harmed by unexpected inflation?

Creditors aren't harmed by unexpected inflation. Creditors are paid back money with less spending power than when it was originally loaned out. C. Creditors receive lower nominal rates of interest when prices rise.

Does the government benefit from inflation?

The key benefit of inflation is that it reduces the real value of government debt. It does this because tax revenues increase approximately in proportion to inflation. Government's fixed debt payments therefore become a smaller part of the tax take and more affordable.
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