ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Inflation does affect the borrowing experience as financial institutions increase their lending rate during this time. As a result, you need to pay more towards the interest component. Further, in such a situation, you borrow when you have more purchasing power but repay when this purchasing power is less.

Detailed explanation-2: -Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

Detailed explanation-3: -Borrowers who purchase assets will lose because, during deflation, assets lose their worth. During deflation, the lenders will not lend money as the interest rates will be low.

Detailed explanation-4: -When inflation is higher than expected, the borrower is better off, and the lender is worse off. The opposite effects occur if inflation is lower than expected: the borrower loses, and the lender wins.