In the case of an unanticipated inflation:
A) creditors with an unindexed contract are hurt because they get less than they expected in real terms.
B) creditors with an indexed contract gain because they get more than they contracted for in nominal terms.
C) debtors with an unindexed contract do not gain 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.

Question

Quizplus · Accepted Answer

In the case of unanticipated inflation, creditors with an unindexed contract are hurt because they receive less than they expected in real terms. This is because inflation reduces the value of money over time, which means that the money they receive in repayment is worth less than it was when the loan was issued.

In the Case of an Unanticipated Inflation