Which one of the following will benefit from an increase in the rate of inflation?
A) A worker at a manufacturing plant receives a fixed nominal income.
B) A lender has lent money to a firm at a fixed nominal interest rate.
C) A firm has borrowed money from a bank and must pay back a fixed nominal interest rate.
D) A person owns bonds that pay a fixed nominal interest.

Question

Quizplus · Accepted Answer

Inflation benefits borrowers who have fixed nominal interest rates on their loans because the real value of the money they repay is less than the value of the money when they borrowed it. This means that the firm in option C will pay back less in real terms than it borrowed.

Which One of the Following Will Benefit from an Increase