When unanticipated deflation occurs:
A)creditors and people with fixed income benefit.
B)both creditors and debtors are hurt.
C)both debtors and creditors benefit.
D)people with fixed income benefit but creditors are hurt.

Question

Quizplus · Accepted Answer

When unanticipated deflation occurs, the general price level falls which means that the value of money increases. This benefits creditors as they will receive a fixed amount of money that holds a higher purchasing power. Similarly, people with fixed income such as retirees, pensioners or people with long-term contracts benefit as their purchasing power increases. However, debtors who have taken loans with fixed interest rates will be hurt as the real value of their debt increases.

When Unanticipated Deflation Occurs