Unanticipated inflation:
A) increases the value of money.
B) decreases uncertainty about the future.
C) reduces the real value of debt.
D) helps lenders.

Question

Quizplus · Accepted Answer

Unanticipated inflation reduces the real value of debt. This is because people borrow money at a fixed rate of interest assuming a certain level of inflation. If the inflation turns out to be higher, the borrower benefits as they are repaying the loan with money that has decreased in value. However, inflation decreases the purchasing power of money, and reduces the value of savings, causing negative impacts.

Unanticipated Inflation