With unanticipated inflation:
A) creditors are hurt unless they have an indexed contract, because they get less than they expected in real terms.
B) debtors with an indexed contract are hurt, because they pay 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) creditors with indexed contracts gain, because they receive 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 receive less than they expected in terms of real value because the money they receive has lower purchasing power. This is especially true for creditors who have loaned money at a fixed interest rate, as the real value of interest payments decreases with inflation.

With Unanticipated Inflation