As the result of unanticipated inflation, lenders are better off while borrowers are worse off if the actual inflation rate
A) is equal to the expected inflation rate.
B) exceeds 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 the actual inflation rate is less than the expected inflation rate, lenders are better off because the real value of the money they are repaid is higher than anticipated. Conversely, borrowers are worse off because they repay money that is worth more in real terms than they expected.

As the Result of Unanticipated Inflation, Lenders Are Better Off