If the rate of inflation rises at a lower rate than expected for the next year,
A) there is no effect on the borrower or lender.
B) the lender benefits.
C) the nominal rate will rise.
D) the borrower gains purchasing power.

Question

Quizplus · Accepted Answer

If inflation rises at a lower rate than expected, the real interest rate (nominal rate minus inflation) is higher than anticipated, benefiting the lender as they receive more purchasing power back than expected.

If the Rate of Inflation Rises at a Lower Rate