Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose 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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