Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
She benefits because her mortgage payments are made with money that is worth less over time.
B
She suffers because her mortgage payments become more expensive in real terms.
C
There is no effect since her payments are fixed.
D
She can pay off her mortgage faster because inflation increases her income.
Understanding the Answer
Let's break down why this is correct
Answer
Unanticipated inflation means that prices for goods and services are rising more than expected. For Maria, who has a fixed-rate mortgage, this situation can actually be beneficial. Her monthly mortgage payments remain the same, but the value of money decreases due to inflation. This means that, over time, Maria will pay off her mortgage with money that is worth less than when she borrowed it, making her payments easier to manage. For example, if her mortgage payment is $1,000 now, in a few years, that same $1,000 will buy her less, making it feel like a smaller burden compared to rising costs of living.
Detailed Explanation
Maria benefits from inflation. Other options are incorrect because This answer suggests that payments get more expensive; This option thinks fixed payments mean no change.
Key Concepts
Unanticipated Inflation
Impact on Borrowers
Fixed-rate Mortgages
Topic
Unanticipated Inflation Effects
Difficulty
easy level question
Cognitive Level
understand
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