Of the following, who would most likely be hurt by an unanticipated increase in the rate of inflation?
A) an individual with a 30-year fixed-rate home mortgage loan
B) the U.S. federal government because it has a large quantity of outstanding debt
C) lenders who have made long-term loans at fixed interest rates
D) Social Security recipients whose benefits are adjusted upward as the general level of prices increases

Question

Quizplus · Accepted Answer

Lenders who have made long-term loans at fixed interest rates would be hurt by an unanticipated increase in the rate of inflation because the money they receive back will be worth less than the amount they originally loaned out. This means that the real value of their earnings would have decreased. Individuals with fixed-rate home loans and Social Security recipients would be protected from inflation to some extent because their payments are adjusted for inflation. The U.S. federal government's debt load is not affected by inflation.

Of the Following, Who Would Most Likely Be Hurt by an Unanticipated