Asked by Rebekah Hilton on May 12, 2024
Verified
If inflation is much higher than originally anticipated,_____ are better off and _____ are worse off.
A) lenders who extended loans at fixed interest rates;people who borrowed at fixed interest rates
B) people who borrowed at fixed interest rates;banks that extended loans at fixed interest rates
C) retired people living on a fixed income;people who had borrowed fixed interest rate loans
D) people who deposited their savings at fixed interest rates;banks that accepted deposits at fixed interest rates
E) oil refiners who signed labor contracts agreeing to pay their workers the cost-of-living wage;workers who receive that cost-of-living wage
Borrowers
Individuals or entities that receive funds from another party under the agreement that the funds will be repaid, typically with interest, over a defined period.
Inflation
The tempo at which the general price level for services and goods rises, degrading the purchasing strength.
Lenders
Individuals, institutions, or entities that offer funds to others with the expectation that the funds will be repaid with interest.
- Familiarize oneself with the implications of both anticipated and surprise inflation on borrowers, lenders, and the general economy.
Verified Answer
KN
Karis NguyenMay 18, 2024
Final Answer :
B
Explanation :
When inflation is higher than anticipated, the real value of money decreases. Borrowers who have fixed interest rate loans benefit because they repay their loans with money that is worth less than expected. Conversely, lenders, such as banks, that extended loans at fixed interest rates are worse off because they receive payments that have less purchasing power than anticipated.
Learning Objectives
- Familiarize oneself with the implications of both anticipated and surprise inflation on borrowers, lenders, and the general economy.