In an unexpected inflation, lenders will generally:
A)gain relative to borrowers.
B)lose relative to borrowers.
C)neither gain nor lose relative to borrowers.
D)The effect will be totally random.

Question

Quizplus · Accepted Answer

In an unexpected inflation scenario, the value of money decreases over time, meaning the amount repaid by borrowers will have less purchasing power than the amount originally lent. Therefore, lenders lose relative to borrowers, as they receive back less in real terms than they lent out.

In an Unexpected Inflation, Lenders Will Generally