Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They repay loans with money that has decreased purchasing power.
B
They receive higher interest rates on their loans.
C
They are able to save more money due to lower prices.
D
They benefit from fixed interest rates that increase with inflation.
Understanding the Answer
Let's break down why this is correct
Answer
Borrowers benefit from unanticipated inflation because it reduces the real value of the money they owe. When inflation rises unexpectedly, the amount of money they have to pay back becomes less valuable over time. For example, if someone borrows $1,000 and inflation increases, they can pay back that same amount with money that is now worth less. This means that in real terms, they are paying back less than what they borrowed, making it easier for them to manage their debt. Therefore, unanticipated inflation can help borrowers by lowering the true cost of their loans.
Detailed Explanation
When inflation is higher than expected, money loses value. Other options are incorrect because Some might think higher inflation leads to higher interest rates; It's a common belief that inflation lowers prices.
Key Concepts
Unanticipated Inflation
Effects on Borrowers and Lenders
Purchasing Power
Topic
Unanticipated Inflation Effects
Difficulty
easy level question
Cognitive Level
understand
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