ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Those who lend at a fixed interest rate
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Those who borrow at a fixed interest rate
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Retired persons with cost-of-living adjustment in their benefits
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Employers who hire workers with long term labor contracts
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Those who lend with flexible interest rates
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Detailed explanation-1: -Any divergence between actual and expected inflation therefore leads to a redistribution, either from the borrower to the lender or from the lender to the borrower. When inflation is higher than expected, the borrower is better off, and the lender is worse off.
Detailed explanation-2: -Real interest rates are negative when the rate of inflation is higher than the nominal interest rate. Nominal interest rates cannot be negative because if banks charged a negative nominal interest rate, they would be paying you to borrow money!
Detailed explanation-3: -Which of the following will happen if the actual inflation rate is greater than the expected inflation rate? Borrowers of fixed interest rate loans will be better off.
Detailed explanation-4: -Unanticipated disinflation or deflation, when the inflation rate is lower than it was expected to be (or even negative), has the opposite effect as unanticipated inflation: lenders are helped and borrowers are hurt.