📚 Learning Guide
Unanticipated Inflation Effects
hard

If unanticipated inflation is to borrowers as unexpected price drops are to which group of economic agents?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Consumers

B

Savers

C

Lenders

D

Investors

Understanding the Answer

Let's break down why this is correct

Answer

Unanticipated inflation helps borrowers because it reduces the real value of the money they owe. When prices rise unexpectedly, the money they pay back is worth less than when they borrowed it. In contrast, unexpected price drops negatively affect sellers or businesses, as they receive less money for their products than they expected. For example, if a store sells a product for $100 but suddenly has to reduce the price to $80 due to unexpected competition, the store loses out on the revenue it thought it would make. Therefore, just as inflation benefits borrowers, unexpected price drops hurt sellers.

Detailed Explanation

When prices drop unexpectedly, savers benefit. Other options are incorrect because Consumers are affected by price changes but do not gain like savers do; Lenders lose when prices drop because the money they get back is worth more.

Key Concepts

Unanticipated Inflation Effects
Impact on Economic Agents
Real Value of Money
Topic

Unanticipated Inflation Effects

Difficulty

hard level question

Cognitive Level

understand

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