Benefit of Inflation for Debtors

Question:

Which of the following people is likely to benefit from inflation?

A. A retired person on a fixed income

B. A person who has a large savings account

C. A person who owes $200,000 on a loan

D. A person with low income

Answer:

C. A person who owes $200,000 on a loan

Description:

Inflation can benefit individuals who have significant debt because it erodes the real value of money over time. When inflation rises, the nominal value of the debt remains the same, but the real value of the amount owed decreases. This means that the burden of repaying the debt becomes less in real terms, as the money used to repay the loan is worth less than it was when the debt was incurred.