If the inflation rate is higher than expected,real income is redistributed from lenders to borrowers.

Question

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If inflation is higher than expected, prices rise faster than anticipated. This means that borrowers who have taken out loans with a fixed interest rate will benefit as they will pay back their loans with money that is worth less. On the other hand, lenders who have given out these loans will receive less value for the money they are repaid, effectively redistributing real income from lenders to borrowers.

If the Inflation Rate Is Higher Than Expected,real Income Is