Question

How does inflation affect the following?

Debtors and creditors 

Answer 1

1. During inflation debtors gain but the creditors lose. When prices rise, the value of money (i.e., purchasing power of money) falls. Though the debtors return the same amount of money, but pay less in terms of goods and services. The purchasing power of money was high when they had borrowed but low at the time of return. Thus, inflation helps the debtors.
2. On the other hand, creditors stand to lose. Although they get back the same amount of money which they lent, they get less in terms of goods and services. Thus, there is a transfer of wealth from creditors to debtors.