Which of the following is a negative consequence of high inflation?

• A. Employees see the real value of their salaries eroded
• B. Borrowers benefit as the real value of their debt falls
• C. Exports become more competitive
• D. Pensioners gain purchasing power

Answer: (A)

High inflation erodes the purchasing power of money because prices rise. If nominal wages don’t keep pace, the real value of salaries falls, so employees can buy less than before. That drop in what money can buy is the negative consequence for workers. Borrowers may benefit since repaying debt with cheaper money reduces the real debt burden, and pensioners on fixed incomes typically lose purchasing power rather than gain it. Exports’ competitiveness is influenced by many factors and isn’t a guaranteed negative outcome of inflation. So the most direct negative effect is the erosion of employees’ real salaries.