When the inflation rate ends up being lower than expected,
A) Everyone benefits because money is cheaper.
B) Everyone benefits because prices do not increase.
C) Lenders of fixed rate mortgages generally benefit because they will make higher profits than they had calculated.
D) Borrowers with fixed rate loans will benefit because their purchasing power will not decline as much.

Question

Quizplus · Accepted Answer

When inflation ends up being lower than expected, borrowers with fixed rate loans benefit because their purchasing power will not decline as much. This is because lower inflation means that the value of their loan will not decrease as quickly, meaning that the amount they borrowed will go further towards purchasing goods and services.

When the Inflation Rate Ends Up Being Lower Than Expected