Question

Which of the following statements is true? Unexpected inflation benefits lenders and hurts borrowers. Unexpected deflation benefits lenders and hurts borrowers. Unexpected inflation benefits borrowers but does not affect lenders. Unexpected deflation benefits lenders but does not affect borrowers

Answer 1

Answer:

Unexpected inflation benefits lenders and hurts borrowers

Explanation:

When the metrics of a named economy has a trendline that tends towards rising inflation, the fed or its equivalent monetary policy control body sets interest rates that compensates for the anticipated rise in inflation to ensure that borrowers don't lose money. As such, unexpected inflation causes borrowers to recoup money that may be higher than the principal but lesser in real value than the anticipated returns would have had absent the inflationary trend.