Inflation Erodes Debt Value

Steps:

• Inflation increases prices, reducing the purchasing power of money over time.
• Fixed nominal debts, like loans, remain the same in dollar amount.
• Repayments use devalued currency, lowering the real cost of the debt.
• Thus, debtors effectively pay less in real terms.

Why D is correct:

• Borrowers repay fixed debts with money worth less due to inflation, reducing the real burden per the definition of real vs. nominal interest rates.

Why the others are wrong:

• A: Foreign tourists face higher local prices, increasing their costs in stronger currencies.
• B: Savings lose real value as inflation outpaces interest earned.
• C: Those paying borrowed money are debtors, but the phrasing implies ongoing payments without highlighting repayment gains; D specifies the benefit to repayers.

Final answer: D