What does inflation have to do with wealth redistribution? a. Loaning money has less cost, since...

What does inflation have to do with wealth redistribution?

	a.	Loaning money has less cost, since you are receiving loan payments that have less value; wealth flows from borrower to lender.
	b.	Borrowing money has less cost, since you are paying the loan back with less purchasing power; wealth flows from lender to borrower.
	c.	Pawn shops gain more at the expense of poor people.
	d.	Lenders gain at the expense of borrowers.
	e.	Since inflation is low, there is no impact of inflation on wealth redistribution.

Expert Solution

Correct option is (b).

Inflation erodes purchasing power of money, which decreases real value of the loan taken by borrowers. Therefore inflation makes borrowers gain at the expense of lenders.

Rahul Sunny answered 3 years ago

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