With unanticipated inflation,
A)creditors are hurt unless they have an indexed contract,because they get less than they expected in real terms.
B)creditors with indexed contracts gain,because they receive more than they contracted for in nominal terms.
C)debtors with an unindexed contract lose,because they pay exactly what they contracted for in nominal terms.
D)debtors with an indexed contract are hurt,because they pay more than they contracted for in nominal terms.
E)debtors with an indexed contract are hurt,because they pay more than they contracted for in real terms.

Question

Quizplus · Accepted Answer

With unanticipated inflation, creditors are hurt because they receive less than they expected in real terms. For example, if a creditor lent $100 at a 5% interest rate, expecting to receive $105 in real terms after one year, but inflation turns out to be 10%, the creditor ends up receiving only $110 nominal dollars, which is worth only $99 in real terms. Only creditors with indexed contracts, where the interest rate adjusts to inflation, would gain in real terms.

With Unanticipated Inflation