Suppose that anticipated inflation is 4% for the coming year,with loan contracts set at 7% in the expectation of a 3% return after inflation.If the actual inflation rate at the end of the year is 2%:
A) creditors gain at debtors' expense.
B) people on a fixed income see the purchasing power of their incomes rising.
C) debtors gain at creditors' expense.
D) there's a redistribution of income from creditors to debtors.

Question

Quizplus · Accepted Answer

When actual inflation is lower than anticipated, creditors gain because the real interest rate they receive is higher than expected, while debtors pay more in real terms.

Suppose That Anticipated Inflation Is 4% for the Coming Year,with