Why are creditors harmed by unexpected inflation?
A)Creditors receive lower nominal rates of interest when prices rise.
B)Creditors are paid back money with less spending power than when it was originally loaned out.
C)Creditors receive higher nominal rates of interest when prices rise.
D)Creditors are paid back with more valuable dollars.

Question

Quizplus · Accepted Answer

When inflation occurs, the value of money decreases over time. As a result, creditors are repaid with dollars that are worth less than the dollars they originally lent out. This means that creditors receive back their money with less spending power than when it was initially loaned out, which harms them financially.

Why Are Creditors Harmed by Unexpected Inflation