Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then:
A) Both lenders and borrowers benefit
B) Both lenders and borrowers are hurt
C) Borrowers are hurt, but lenders benefit
D) Lenders are hurt, but borrowers benefit

Question

Quizplus · Accepted Answer

Unanticipated inflation erodes the real value of money. Borrowers benefit because they repay loans with money that is worth less than anticipated, while lenders are hurt as they receive less real value than expected.

Assume That There Is a Fixed Rate of Interest on Contracts