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Question
Identity the correct statement from the following:
Options
Debtors gain during inflation
Creditors lose during inflation
Both Debtors gain during inflation and Creditors lose during inflation.
Neither Debtors gain during inflation and Creditors lose during inflation.
Solution
Both Debtors gain during inflation and Creditors lose during inflation.
Explanation:
- Debtors gain during inflation: This is correct because inflation decreases the real value of money over time. Debtors repay their loans with money that is worth less than when they initially borrowed it.
- Creditors lose during inflation: This is also correct because the money they receive back from debtors has less purchasing power than the money they originally lent.
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