If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower ______ and the lender ______.
A)gains; gains
B)gains; loses
C)is not affected; gains
D)loses; gains

Question

Quizplus · Accepted Answer

The borrower gains because they repay the loan with money that is worth less than expected due to higher inflation, while the lender loses because they receive payments that have less purchasing power than anticipated.

If a Borrower and Lender Agree to an Interest Rate