Unanticipated positive inflation will create
A) losses for creditors and gains for debtors.
B) losses for both creditors and debtors.
C) gains for both creditors and debtors.
D) gains for creditors and losses for debtors.

Question

Quizplus · Accepted Answer

Unanticipated inflation means that the inflation rate is higher than expected. In such a case, debtors will benefit because they have to pay back loans with dollars that are worth less than when they borrowed them. Creditors, on the other hand, lose out because they are repaid with dollars that are worth less than when they issued the loan. Therefore, unanticipated positive inflation would create gains for debtors and losses for creditors.

Unanticipated Positive Inflation Will Create