If the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation,
A)borrowers gain and savers lose.
B)savers gain and borrowers lose.
C)both borrowers and savers lose.
D)neither borrowers nor savers gain nor lose.

Question

Quizplus · Accepted Answer

If the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation, then both borrowers and savers will not gain nor lose. This is because the real interest rate (nominal rate - inflation rate) will be at zero, meaning the purchasing power of the borrowed money is equivalent to the purchasing power of the saved money. Therefore, neither borrowers nor savers gain nor lose.

If the Interest Rate Paid by Borrowers and the Interest