Inflation, the rate of change of average prices in the economy, generally
A)increases the purchasing power of money.
B)reduces the real value of existing nominal debt.
C)increases the real value of fixed money incomes.
D)has no real effects if it is unanticipated.
E)benefits creditors if it is unanticipated.

Question

Quizplus · Accepted Answer

Inflation reduces the real value of existing nominal debt because the amount of money owed remains the same, but its real value decreases due to inflation. This means that borrowers are able to repay their debts with money of less value than when the loan was made.

Inflation, the Rate of Change of Average Prices in the Economy