Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead
A) lenders on existing fixed rate loans will gain while borrowers will lose.
B) next year's CPI will be lower than this year's CPI.
C) the percentage growth of the CPI will be negative.
D) Each of these outcomes will occur.

Question

Quizplus · Accepted Answer

Deflation means a decrease in the general price level of goods and services, which would result in a lower CPI and negative CPI growth. Lenders gain because the real value of money repaid is higher, while borrowers lose.

Current Forecasts Say That Mild Inflation Is Expected Next Year