In contrast with unanticipated inflation, anticipated inflation implies that
A) the government was informed about inflation.
B) most decision makers expected the general increase in the price level.
C) the increase in the general level of prices was growth of GDP.
D) the increase in the general level of prices was expected by borrowers but not lenders.

Question

Quizplus · Accepted Answer

Anticipated inflation means that most decision makers, including both borrowers and lenders, expect an increase in the general level of prices. This expectation is usually based on past trends and economic indicators, and so it is not surprising or unexpected. As a result, borrowers can adjust their behavior by borrowing at lower interest rates and lenders can adjust their behavior by charging higher interest rates to compensate for the anticipated inflation.

In Contrast with Unanticipated Inflation, Anticipated Inflation Implies That