ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Those that benefit from unanticipated inflation are employees with increasing income and individuals with debt. Unlike banks, debtors paying with a dollar that has a decreased purchasing power, save money on their loans.

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: -Inflation allows borrowers to pay lenders back with money worth less than when it was originally borrowed, which benefits borrowers. When inflation causes higher prices, the demand for credit increases, raising interest rates, which benefits lenders.

Detailed explanation-4: -Landowners and Real Estate Investors. When inflation is high, savings and other liquid assets can lose value fast. However, physical assets like land tend to hold value remarkably well during volatile times. The demand for real estate can even increase when inflation is high – driving up land prices even higher.

Detailed explanation-5: -1. Unanticipated inflation, inflation that is not expected, will redistribute income and wealth. a. Redistribution of income occurs because some wages and salaries increase more rapidly than the price level while other wages and salaries increase more slowly than the price level.