As the result of unanticipated inflation, borrowers are better off while lenders are worse off if the actual inflation rate
A) exceeds the expected inflation rate.
B) is equal to the expected inflation rate.
C) is less than the expected inflation rate.
D) Neither borrowers nor lenders are better off as the result of unanticipated inflation.

Question

Quizplus · Accepted Answer

When actual inflation exceeds the expected inflation rate, borrowers who have fixed debt payments benefit because they can repay their loans with less valuable money. However, lenders who receive fixed payments suffer because the money they receive is worth less than what they expected. Therefore, borrowers are better off, while lenders are worse off.

As the Result of Unanticipated Inflation, Borrowers Are Better Off