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Inflation that is ________ than what is expected benefits ________ and hurts ________. a. greater; lenders; borrowers b. greater; lenders; no-one c. less; borrowers; lenders d. less; lenders; borrowers

Question

Inflation that is ________ than what is expected benefits ________ and hurts ________.

a. greater; lenders; borrowers

b. greater; lenders; no-one

c. less; borrowers; lenders

d. less; lenders; borrowers

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Solution

The correct answer is:

c. less; borrowers; lenders

When inflation is less than expected, borrowers benefit because the real value of the money they have to pay back is higher than they anticipated. On the other hand, lenders are hurt because the real value of the money they receive back is less than they expected.

Options a, b, and d are incorrect. Option a is incorrect because when inflation is greater than expected, it's the borrowers who benefit, not the lenders. Option b is incorrect because unexpected inflation always has winners and losers. Option d is incorrect because when inflation is less than expected, it's the lenders who are hurt, not the borrowers.

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