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Thu 19 Nov, 2015 12:51 pm
I came across following sentence in the book titled "The Economic History of India, 1857-1947" authored by Tirthankar Roy.
Consequently, the money supply increased to finance the deficit. The nominal demand for goods expanded, but the supply of essential goods, including foodgrains, was diverted to the war effort. The net effects were a massive inflation, erosion of real incomes, and a fall in the burden of private debt.
I can understand how money supply resulted in inflation and consequently reduction in real income but how could all this cause decrease in private debt.
Thanks.
@freesoul,
freesoul wrote:but how could all this cause decrease in private debt.
Your quote doesn't say that private debt decreased, but that the
burden of private debt decreased. The
burden decreases for the following reason: If your private debt is in nominal rupees and inflation erodes the real value of the rupee, then the real value of your debt decreases with it. It's the real value of your debt that constitutes the burden.
@Thomas,
Thank you, Thomas for the reply
So, the real issue here is 'burden of debt' which can go down because of inflation. But, if there is no increase in income proportional to inflation, could it result in higher (or no change) burden of debt?
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