AP Macroeconomics Question 58: Answer and Explanation
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8. Which group of people will suffer the most from a rising price level?
- A. debtors with fixed interest rates
- B. people with fixed money incomes
- C. investors in gems, coins, and stamps
- D. property owners
- E. lenders of adjustable-rate mortgage loans
Correct Answer: B
B People with fixed money incomes will suffer because the purchasing power of their fixed incomes will fall as the price level rises. Debtors will benefit because the purchasing power of the money they must pay back falls as the price level rises. Investors in gems, coins, stamps, and property can expect the prices of the items they own to increase with the price level. Lenders of adjustable-rate mortgages are protected from inflation because the interest rates they receive increase with the price level.