If inflation is perfectly anticipated,benefits are indexed,and there are no restrictions on contracts,which group loses purchasing power because of inflation?
A) Borrowers,lenders and retirees
B) Only borrowers
C) Neither lenders,borrowers,nor retirees
D) Only lenders
E) Only retirees

Question

Quizplus · Accepted Answer

If inflation is perfectly anticipated, benefits are indexed, and there are no restrictions on contracts, then all parties can adjust their behavior accordingly. Borrowers can adjust the interest rate they are willing to pay to account for expected inflation, lenders can adjust the interest rate they are willing to charge for the same reason, and retirees can adjust their savings behavior to account for the expected changes in prices. As a result, no group loses purchasing power because of inflation.

If Inflation Is Perfectly Anticipated,benefits Are Indexed,and There Are No