Which of the following is a positive impact of inflation?

• A. Borrowers benefit because the real value of their debt falls
• B. Salaries keep pace automatically
• C. Exports become more competitive
• D. The real value of pensions increases

Answer: (A)

Inflation reduces the purchasing power of money, so debts fixed in nominal terms lose real value as prices rise. If you borrow money and repay with money that’s worth less in real terms, the real burden of that debt falls, which is a genuine benefit to borrowers.

Salaries don’t automatically keep pace with inflation; wage growth depends on contracts and negotiations, so real incomes may rise or fall. Exports becoming more competitive isn’t guaranteed simply from inflation—if domestic prices rise faster than foreign prices, or if the currency doesn’t depreciate, competitiveness can suffer rather than improve. The real value of pensions tends to fall unless they are indexed to inflation; inflation typically erodes purchasing power for non-indexed pensions.