84. Which of the following effects of inflation on different groups of society is correct?
1. Debtors and Creditors: During periods of rising prices, creditors gain and debtors lose.
2. Equity Holders or Investors: Persons who hold shares or stocks of companies gain during inflation.
3. Salaried Persons: Salaried workers such as clerks, teachers, and other white collar persons lose when there is inflation.
Select the correct answer using the codes given below:
84. Which of the following effects of inflation on different groups of society is correct?
1. Debtors and Creditors: During periods of rising prices, creditors gain and debtors lose.
2. Equity Holders or Investors: Persons who hold shares or stocks of companies gain during inflation.
3. Salaried Persons: Salaried workers such as clerks, teachers, and other white collar persons lose when there is inflation.
Select the correct answer using the codes given below:
The correct option is B Only 2 and 3
During periods of rising prices, debtors gain and creditors lose. When prices rise, the value of money falls. Though debtors return the same amount of money, but they pay less in terms of goods and services. This is because the value of money is less than when they borrowed the money. Thus the burden of the debt is reduced and debtors gain. On the other hand, creditors lose. Although they get back the same amount of money which they lent, they receive less in real terms because the value of money falls. Thus inflation brings about a redistribution of real wealth in favour of debtors at the cost of creditors.
Salaried workers such as clerks, teachers, and other white collar persons lose when there is inflation. The reason is that their salaries are slow to adjust when prices are rising.
Persons who hold shares or stocks of companies gain during inflation. For when prices are rising, business activities expand which increase profits of companies. As profits increase, dividends on equities also increase at a faster rate than prices.
But those who invest in debentures, securities, bonds, etc. which carry a fixed interest rate lose during inflation because they receive a fixed sum while the purchasing power is falling
During periods of rising prices, debtors gain and creditors lose. When prices rise, the value of money falls. Though debtors return the same amount of money, but they pay less in terms of goods and services. This is because the value of money is less than when they borrowed the money. Thus the burden of the debt is reduced and debtors gain. On the other hand, creditors lose. Although they get back the same amount of money which they lent, they receive less in real terms because the value of money falls. Thus inflation brings about a redistribution of real wealth in favour of debtors at the cost of creditors.
Salaried workers such as clerks, teachers, and other white collar persons lose when there is inflation. The reason is that their salaries are slow to adjust when prices are rising.
Persons who hold shares or stocks of companies gain during inflation. For when prices are rising, business activities expand which increase profits of companies. As profits increase, dividends on equities also increase at a faster rate than prices.
But those who invest in debentures, securities, bonds, etc. which carry a fixed interest rate lose during inflation because they receive a fixed sum while the purchasing power is falling
