If you were a borrower, which of the following unexpected changes in inflation would you prefer once you have taken out a long term fixed rate loan?
A)An increase from 2% inflation to 6% inflation.
B)An increase from 7% inflation to 10% inflation.
C)A decrease from 14% inflation to 8% inflation.
D)A decrease from 6% inflation to 3%.

Question

If you were a borrower, which of the following unexpected changes in inflation would you prefer once you have taken out a long term fixed rate loan?
A)​An increase from 2% inflation to 6% inflation.
B)​An increase from 7% inflation to 10% inflation.
C)​A decrease from 14% inflation to 8% inflation.
D)​A decrease from 6% inflation to 3%.

Quizplus · Accepted Answer

An increase in inflation benefits borrowers with fixed-rate loans because it reduces the real value of the money they have to repay. Among the options, moving from 2% to 6% inflation represents a significant decrease in the real value of repayments, making it the most favorable scenario for a borrower.

If You Were a Borrower, Which of the Following Unexpected