If a borrower and lender agree to an interest rate on a loan when inflation is expected to be seven per cent and inflation turns out to be 10 per cent over the life of the loan, then the borrower _____ and the lender ______.

Question

Quizplus · Accepted Answer

When inflation is higher than expected, the real value of the money repaid is less than anticipated, benefiting the borrower (who repays with "cheaper" dollars) and harming the lender (who receives less in real terms).

If a Borrower and Lender Agree to an Interest Rate