A sudden increase in the U.S. price level
A) makes those with dollar debts worse off.
B) makes those with dollar debts better off.
C) does not affect those with dollar debts.
D) makes those with foreign debts better off.
E) increases all dollar debts.

Question

Quizplus · Accepted Answer

A sudden increase in the U.S. price level (inflation) reduces the real value of money. This means that the real burden of debt decreases for those who owe money in dollars, as they can repay their debts with money that is worth less in terms of purchasing power. Hence, those with dollar debts are made better off.

A Sudden Increase in the U.S. Price Level