If inflation increases unexpectedly,then
A)borrowers pay a higher real interest rate than they expected.
B)lenders receive a lower real interest rate than they expected.
C)lenders gain and borrowers gain.
D)neither borrowers nor lenders lose.

Question

Quizplus · Accepted Answer

When inflation increases unexpectedly, the value of money decreases, meaning the amount paid back by borrowers has less purchasing power than anticipated. This results in lenders receiving a lower real interest rate than they expected, as the real value of the interest payments they receive is eroded by the higher inflation.

If Inflation Increases Unexpectedly,then