When prices rise in Germany, what is the effect on nominal debt and consumption in Germany?
A)Nominal debt remains unchanged, but the real value of debt falls, and this encourages consumers to spend more.
B)Nominal debt remains unchanged, but the real value of debt rises, and this discourages consumption.
C)Nominal value of debt falls, and this encourages consumers to spend more.
D)Nominal value of debt rises, and this encourages consumers to spend less.

Question

Quizplus · Accepted Answer

When prices rise, the nominal value of debt remains the same, but its real value decreases because the money borrowed can now buy less due to inflation. This reduction in the real burden of debt can make consumers feel wealthier or less constrained, potentially encouraging them to spend more.

When Prices Rise in Germany, What Is the Effect on Nominal