Question

1. Herb, who keeps his savings in an old coffee can. 2. Karen, a retired school teacher that relies upon her fixed pension to pay for her expenses. 3. 3rd National, a bank that loaned many people money for home purchases. 4. Joy, who has borrowed $40,000 to pay for her college education.5. The U.S. federal government, which had almost $15 trillion in debt in 2011.

Answer 1

1. Herb, who keeps his savings in an old coffee can. LOSER: inflation decreases the purchasing power of a currency, so you can buy less products with the same amount of money.

2. Karen, a retired school teacher that relies upon her fixed pension to pay for her expenses. LOSER: inflation decreases the purchasing power of a currency, so you can buy less products with the same amount of money.

3. 3rd National, a bank that loaned many people money for home purchases. LOSER: inflation decreases the real interest rate of loans; the real interest rate = nominal interest rate - inflation. The bank will charge less for the loans it made.

4. Joy, who has borrowed $40,000 to pay for her college education. WINNER: inflation decreases the real interest rate of loans; the real interest rate = nominal interest rate - inflation. So Joy will pay less for her loan.

5. The U.S. federal government, which had almost $15 trillion in debt in 2011. WINNER: inflation decreases the real interest rate of loans; the real interest rate = nominal interest rate - inflation. So the US government will pay less for the national debt.