Which of the following is not a negative effect of inflation
Answer Details
The statement "Borrowers tend to gain" is not a negative effect of inflation. When the inflation rate is high, the purchasing power of money decreases over time. As a result, the value of loans and debts also decreases in real terms. Borrowers who borrowed money at a fixed interest rate before inflation occurred benefit from paying back the loan with less valuable money than when they borrowed it. Hence, inflation benefits borrowers because they pay back less in real terms than they borrowed.
However, inflation has negative effects such as lenders earning less because the money they receive back has less purchasing power than the money they loaned out. Pensioners and salary earners on fixed income suffer because their income remains fixed, but the cost of living increases due to inflation. Exports tend to decline because higher inflation rates increase the costs of production, which results in higher prices for exports. Savings are discouraged because the value of savings decreases over time due to inflation, which discourages people from saving money.