Wealth is redistributed from creditors to debtors when inflation was expected to be
A)high and it turns out to be high.
B)low and it turns out to be low.
C)low and it turns out to be high.
D)high and it turns out to be low.

Question

Quizplus · Accepted Answer

When inflation is expected to be low but it turns out to be high, creditors lose out because they receive payment in dollars that have less purchasing power than the dollars they lent out. However, debtors benefit because they are paying back loans with dollars that are worth less than when they borrowed them. This leads to a redistribution of wealth from creditors (who have excess dollars) to debtors (who have borrowed those dollars).

Wealth Is Redistributed from Creditors to Debtors When Inflation Was