Current forecasts say that mild inflation is expected next year. If, however, deflation occurs instead:
A) lenders on existing fixed rate loans will gain while borrowers will lose.
B) borrowers on existing fixed rate loans will gain while lenders will lose.
C) both lenders and borrowers on existing fixed rate loans will lose.
D) both lenders and borrowers on existing fixed rate loans will gain.

Question

Quizplus · Accepted Answer

In a deflationary environment, the real value of money increases. Lenders gain because the money they receive back has more purchasing power, while borrowers lose because they have to repay loans with money that is worth more than when they borrowed it.

Current Forecasts Say That Mild Inflation Is Expected Next Year