Unanticipated inﬂation tends to harm
A) people who save money in ﬁnancial institutions.
B) individuals who borrow money from ﬁnancial institutions.
C) businesses which borrow money from ﬁnancial institutions.
D) governments that have a progressive personal income tax.

Question

Quizplus · Accepted Answer

Unanticipated inflation harms people who save money in financial institutions because the inflation reduces the purchasing power of their savings, leading to a decrease in their real wealth. This is because the nominal interest rate paid on their savings may not keep pace with the inflation rate, leading to a decline in the real interest rate earned on their savings. In contrast, borrowers benefit from unanticipated inflation because the inflation reduces the real value of the money they owe, making it easier for them to repay their debts.

Unanticipated Inﬂation Tends to Harm