Heavy use of long-term debt may be beneficial in an inflationary economy because
A) the debt may be repaid in more "expensive" dollars.
B) nominal interest rates exceed real interest rates.
C) inflation is associated with the peak of a business cycle.
D) the debt may be repaid in "cheaper" dollars.

Question

Quizplus · Accepted Answer

Heavy use of long-term debt may be beneficial in an inflationary economy because the debt may be repaid in "cheaper" dollars. This is because inflation leads to the devaluation of currency, hence the value of debt decreases over time, making it easier to repay.

Heavy Use of Long-Term Debt May Be Beneficial in an Inflationary