When the inflation rate ends up being lower than expected,
A) everyone benefits because money is cheaper
B) everyone benefits because prices do not increase
C) lenders of fixed-rate mortgages generally benefit because they will make higher profits than they had calculated
D) borrowers with fixed-rate loans will benefit because their purchasing power will not decline as much
E) no one benefits because everyone made financial calculations based on the projected interest rate

Question

Quizplus · Accepted Answer

When inflation is lower than expected, the real interest rate (nominal rate minus inflation) is higher than anticipated. Lenders benefit because they receive payments with higher purchasing power than expected.

When the Inflation Rate Ends Up Being Lower Than Expected