Real income is redistributed from ________ in the case of ________ inflation.

Question

Quizplus · Accepted Answer

In the case of unanticipated inflation, creditors (lenders) lose purchasing power because their fixed-rate loans are repaid with dollars that are worth less than they were when the loan was made. Debtors (borrowers) benefit from this because they pay back their loans with dollars that are worth less than when they borrowed them. Therefore, real income is redistributed from creditors to debtors. This is not the case in anticipated inflation because lenders would charge higher interest rates to compensate for the expected inflation, and borrowers would take this into account when making lending decisions.

Real Income Is Redistributed from ________ in the Case of ________

Real Income Is Redistributed from in the Case of