Inflation Benefits Fixed-Rate Debtors

Steps:

• Inflation increases prices, reducing the purchasing power of money over time.
• Fixed payments remain constant in nominal terms but decline in real value.
• Borrowers repay loans with inflated currency, effectively lowering the real cost of debt.
• Lenders and fixed-income recipients receive payments worth less in real terms.

Why D is correct:

• Borrowers with fixed-rate loans repay a constant nominal amount, but inflation erodes its real value, reducing the effective debt burden (per the Fisher equation on real interest rates).

Why the others are wrong:

• A: Fixed state benefits lose real value as prices rise, harming recipients.
• B: Fixed incomes buy fewer goods during inflation, decreasing living standards.
• C: Lenders receive fixed interest payments that diminish in real value, leading to losses.

Final answer: D