Need some help on multiple choice! (1 Viewer)

[KierenTran]

Which of the following is the most likely effect of inflation?

(B) People who have lent money on fixed rates of interest will benefit
(C) People who have borrowed money on fixed rates of interest will benefit.

I've already cancelled A and D as they are obviously wrong answers. So could someone please explain to me which one is it?
Thanks

Also, how do you calculate labour productivity rise? if they give you information on Price Index, Labour Force Index, and Real GDP Index

 

[Indoz]

I would say: with the multiple choice, the answer would be C, because the value of the repayments will fall over the time period, everything else staying the same. on the other hand, lenders would have less purchases (i dont know what term to use ) due to the falling repayments.

 

[deswa1]

A simple way of looking at it is like this. Say I lend you $100 at 10% interest rate. That means I'm going to get $10 back. If inflation goes up, that $10 is suddenly worth less. So, now with this hint, what do you think the answer is?