22 In periods of unexpected inflation a borrowers benefit si

22. In periods of unexpected inflation:

a. borrowers benefit since they repay their loans in dollars with lower real value

b. lenders benefit since they are repaid in dollars with a higher real value

c. neither borrowers nor lenders are affected by the inflation rate since their nominal interest rate stays the same

d. lenders benefit since the nominal interest rate does not change

e. borrowers are hurt since they repay their loans in dollars with higher real value

Solution

a) borrowers benefit since they repay their loans in dollars with lower real value.

Explanation: The money has been borrowed before the inflation, and the money has more real power means the money can buy more and now when the borrower pays the money back after inflation, the money has lower real value that means the money won\'t buy much as before.