Given a fixed nominal interest rate on a loan,what is the result of unanticipated deflation?
A)It increases the burden of paying off the loan.
B)It does not alter the burden of paying off the loan.
C)It has an indeterminate effect on the burden of paying off the loan.
D)It decreases the burden of paying off the loan.

Question

Quizplus · Accepted Answer

Unanticipated deflation increases the purchasing power of money, meaning that the value of the currency increases. As a result, the borrower will have to pay back the loan with more valuable dollars, which will increase the burden of paying off the loan. In other words, the borrower will have to spend more money to repay the loan than they initially expected.

Given a Fixed Nominal Interest Rate on a Loan,what Is