If the economy experiences unexpected inflation,then the real interest rate will be _____ than its equilibrium rate,and wealth will be distributed from _____.
A) greater;lenders to borrowers
B) less;lenders to borrowers
C) greater;borrowers to lenders
D) less;borrowers to lenders

Question

Quizplus · Accepted Answer

Unexpected inflation will lead to a higher nominal interest rate, but a lower real interest rate. Lenders will lose out because they receive a lower real return on their loans, while borrowers will benefit because they repay their loans with dollars that are worth less in real terms. Therefore, wealth will be distributed from lenders to borrowers.

If the Economy Experiences Unexpected Inflation,then the Real Interest Rate