During a period of unanticipated inflation,
A)Debtors are better off and creditors are worse off.
B)Debtors and creditors are both better off because of lower real interest rates.
C)Individuals on fixed incomes are better off.
D)All individuals are worse off because of the level of uncertainty.

Question

Quizplus · Accepted Answer

During periods of unanticipated inflation, the prices of goods and services rise unexpectedly, reducing the real value of money. As a result, debtors benefit because the money they borrowed will be paid back in dollars with less buying power. Creditors, on the other hand, are worse off because they will receive dollars with a lower value than they expected when they lent the money. Individuals on fixed incomes may also be worse off because their income will not rise with inflation, reducing their purchasing power. The level of uncertainty may also make individuals worse off as they struggle to make financial plans in an unpredictable economy.

During a Period of Unanticipated Inflation