If actual inflation is less than the expected rate of inflation, then probably
A)the borrower gains at the expense of the lender.
B)neither the borrower nor the lender gains.
C)the lender gains at the expense of the borrower.
D)the purchasing power of the borrower is increased.

Question

Quizplus · Accepted Answer

If actual inflation is less than the expected rate of inflation, it means that the lender expected to receive a higher interest rate on the loan to compensate for the expected inflation. However, since the actual inflation rate is lower, the borrower ends up paying a lower interest rate than expected, giving them an advantage. On the other hand, the lender is receiving a lower interest rate than expected, leading to a loss. Therefore, the lender gains at the expense of the borrower.

If Actual Inflation Is Less Than the Expected Rate of Inflation