If the actual rate of inﬂation is higher than the expected rate of inﬂation, there is a redistribution of wealth from creditors to debtors.

Question

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When actual inflation is higher than expected, debtors benefit because they are able to pay back loans with less valuable money. Creditors, on the other hand, lose out because they receive payments that have less purchasing power than they anticipated. This results in a redistribution of wealth from creditors to debtors.

If the Actual Rate of Inﬂation Is Higher Than the Expected