Who are the winners and losers from unexpected inflation?
Choose 1 answer:
(A) Borrowers win, lenders lose
(B) Both borrowers and lenders lose
(c) Both borrowers and lenders win
(D) Borrowers lose, lenders win
(E) Nobody wins from unanticipated inflation

Question

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To understand the impact of unexpected inflation, we need to consider the real interest rate, which is the nominal interest rate adjusted for inflation. The real interest rate can be calculated using the formula: $ real\ interest\ rate = nominal\ interest\ rate - inflation\ rate $. ‖ ‖ step 2 ⋮ If the actual inflation rate is higher than expected, borrowers benefit because they pay back their loans with money that is worth less than anticipated. Lenders lose because they receive money that is worth less than they expected. ‖ ‖ step 3 ⋮ Conversely, if the actual inflation rate is lower than expected, borrowers lose because they pay back their loans with money that is worth more than anticipated. Lenders win because they receive money that is worth more than they expected. ‖ ‖ step 4 ⋮ Since the question is about unexpected inflation, we focus on the scenario where the actual inflation rate is different from the expected one. The correct answer must reflect the situation where one party benefits at the expense of the other due to this discrepancy. ‖ ∻Answer∻ ***A*** ∻Key Concept∻ ⚹Real Interest Rate Adjustment for Inflation⚹ ∻Explanation∻ ⚹Unexpected inflation affects borrowers and lenders differently. Borrowers benefit from higher-than-expected inflation, while lenders benefit from lower-than-expected inflation. The real interest rate adjusts the nominal rate to reflect the change in purchasing power due to inflation◊What is the probability of randomly selecting the correct answer to the multiple choice question about winners and losers from unexpected inflation?⍭ Generate me a similar question◊⚹

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