When unanticipated deflation occurs:
A) Both creditors and debtors benefit
B) Both creditors and debtors are hurt
C) Debtors are hurt, but creditors benefit
D) Creditors are hurt, but debtors benefit

Question

Quizplus · Accepted Answer

In an unanticipated deflation, the value of money increases, which means the prices of goods and services decrease. This hurts debtors who have to pay back loans with more valuable money than they borrowed. On the other hand, creditors benefit since they receive more valuable money than they lent out. Therefore, Choice C is the best answer.

When Unanticipated Deflation Occurs