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Interest

This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.

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November 4, 2021 at 5:32 am #639883
lekriyazo
Participant
- Topics: 5
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Sir
In my book
It’s stated that High inflation is generally harmful to lenders but helpful to burrowers
Could you please explain how will it be harmful
For lenders point of perspective
And how will it be helpful in
Borrowers point of view
Thank you
November 4, 2021 at 7:33 am #639890
John Moffat
Keymaster
- Topics: 57
- Replies: 54655
If I am a lender and I lend you $100 now, then you will repay me $100 sometime in the future. However if there is high inflation then $100 on a future date will not buy me as much as it will buy me today.
If I am a borrower and I borrow $100 today, then I will have to repay $100 sometime in the future.
However if there is high inflation, my wages will have gone up by the time I have to repay and the $100 is going to be a smaller proportion of my wages and so easier for me to repay.
November 4, 2021 at 12:04 pm #639903
lekriyazo
Participant
- Topics: 5
- Replies: 3
If there is high inflation the wages go up
Because we need to purchase goods as well so in general
This actual happens all round the world right sir
November 4, 2021 at 1:52 pm #639913
John Moffat
Keymaster
- Topics: 57
- Replies: 54655
It isn’t law that it should happen and wages might not go up, however usually with there is high inflation then they will go up. But that is why the question uses the word ‘generally’ (i.e. usually, but not necessarily always).
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