If inflation is lower than what was expected,
A)creditors receive a lower real interest rate than they had anticipated.
B)creditors pay a lower real interest rate than they had anticipated.
C)debtors receive a higher real interest rate than they had anticipated.
D)debtors pay a higher real interest rate than they had anticipated.

Question

Quizplus · Accepted Answer

If inflation is lower than expected, the real interest rate (nominal rate minus inflation) is higher than anticipated. Debtors end up paying a higher real interest rate than they expected, as the nominal rate remains the same but inflation is lower.

If Inflation Is Lower Than What Was Expected