Unanticipated inflation clearly imposes a cost on
A) everyone, because it reduces money incomes.
B) employees working under contracts with cost-of-living increase clauses.
C) borrowers.
D) lenders.
E) foreigners, because our exports cost more.

Question

Quizplus · Accepted Answer

Unanticipated inflation imposes a cost on lenders because the money they are repaid with has less purchasing power than the money they lent out. Contracts based on fixed interest rates do not account for unexpected inflation, leading to a loss in real value for the lender.

Unanticipated Inflation Clearly Imposes a Cost on