You are watching: True or false: lenders are helped by unanticipated inflation.
How, in general, can a financial crisis lead to a recession? How, in general, have the right to a significant brand-new creation result in an expansion?
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were wondered about. I defined wetter. The phone statements are true, false or unspecific. So we initially take a look at question A's question of a zing that inflation hurts, borrows and helps lenders because bars must pay a higher price of interemainder. So question is false. Why is it the case that it's close? Since, um, when we borrow our land also money, the interest price is many of the moment written dvery own on the contract. So it is not interest re that that has changed but inflation. So if tbelow is inclusion, the worth off money goes dvery own. Right? Say what we created on the contract offered to be all me say a borrows $100 from being appropriate currently. So the contract is dangerous. Okay, One year later on, A has to be passist. Has to pay back this $100 to be right. But if this $100 is a solved amount. So if there is an ideas, um, this $100 is not as useful as what it provided to be in the past. So in this case, the borrower here a A is better off because although he spring earlier, is this $100 bill. It is not that, um, costly for him. And why on the r and also B is worse off because the $100 bills you only sees best now due to inflation might not gain as many goods as he deserve to yesterday till the statement A is walls. Apparently so question be be saying that if prices change in a way that leaves 3 as a whole price level unchanged, then no one is made better Or what's worse off. I would say this, uh, be statement is uncertain. Unspecific. So youse were prepared. I will certainly create you here. Why is it uncertain? Due to the fact that it states that if the overall price level is unchanged, So how execute you measure the all at once price level? This question does not define very plainly. So what I have in mind is that yearly on meacertain the all at once price level by a finest a basket of goods. Say so when we prepare favor choke ameans. The CP I, uh, consumer product index for the economic situation tright here is favor a basket of goods and also there are lots of points things I say Ah, like possibly a automobile. People buy it Khan story. Maybe people buy an apple. We're a banana or a auto right here. So it appeared that the average price of this basket doesn't change, but does it not impact anyone? This is not specifically the way it is bereason whatever you are someone who really nice to eat apple. And in this basket the price of 1/2 foot goes up while the price of banana goes dvery own and the price of auto doesn't change. So that is why this all at once price of base basket doesn't adjust. But if you or someone who really likes to eat apple, it is negative for you because the echo is even more expensive, right? While if you're some of them really wise to eat banana, it is actually good for you bereason the price of the Bennett banana goes down. So this is how this statement is unparticular bereason some we perform not know the price adjust of each commodities in this basket way. Questions watch questions, See, is as saying that inflation does not reduce the purchasing power off the majority of dopers. I would say in truth this statement is false. Why? Due to the fact that inflation here, if we think of some inflation in the brief on, say that now and also that always $100 then tomorrow be a boy's $110. It is actually going to affect the purchasing power off workers bereason they're weighing their wage could not go up as easily as the inflation. What if they earn the air in $100 this day and also their wage does not adjust through inflation? That's easily. So she is earning, say, 100 a $1 tomorrow. This is an extremely tiny racing his salary. But have the right to we afford this expensive apple? No. So this inflation is actually going to influence employees because the wage does not adjust, um, in the same rate as the procedure.