Question

Why does some inflation help people who owe debt?
A. dollars are worth less and easier to pay
B.banks are more likely to forgive debt
C. dollars are worth more and easier to pay
D.banks are less likely to give better loans
Group of answer choices

Answer 1

Answer: A. dollars are worth less and easier to pay

If someone borrows money before inflation kicks in, then the debt would be easier to pay back because the person would earn more (due to higher wages) and be able to pay off the debt faster. This is of course assuming the person pays off the debt as quickly as possible, and does not get distracted with other purchases.

In general, inflation eats at the purchasing power of money. The more money there is in circulation, the less a dollar can purchase. So this is why the value of the dollar goes down.