Under which of the following conditions is wealth distributed from creditors to debtors?
A)When inflation is high, whether it is expected or not.
B)When inflation is low, whether it is expected or not.
C)When inflation is unexpectedly high.
D)When inflation is unexpectedly low.

Question

Quizplus · Accepted Answer

When inflation is unexpectedly high, it can benefit debtors at the expense of creditors. This is because the value of the money they owe decreases, while the value of the money they receive in payments remains constant. Therefore, their debt becomes less burdensome, and they effectively receive a transfer of wealth from creditors. Conversely, when inflation is unexpectedly low, creditors benefit at the expense of debtors, as the value of the money owed increases in real terms.

Under Which of the Following Conditions Is Wealth Distributed from Creditors