When the unanticipated inflation rate is zero
A) creditors gain at the expense of debtors.
B) debtors gain at the expense of creditors.
C) neither creditors not debtors gain or lose.
D) both creditors and debtors lose at the expense of the government.

Question

Quizplus · Accepted Answer

When the unanticipated inflation rate is zero, neither creditors nor debtors gain or lose. This is because the expected inflation rate is already factored into the interest rate that creditors charge and debtors pay. So, if the actual inflation rate is zero, it means that the expected inflation rate was correct, and no adjustment needs to be made. Therefore, neither creditors nor debtors are affected by unanticipated inflation in this scenario.

When the Unanticipated Inflation Rate Is Zero