Explain why you would rather be a borrower during a period of unexpected rising inflation, and a lender during a period of unexpected declining inflation
What will be an ideal response?
The nominal interest rate includes a charge to compensate the lender for the loss in the purchasing power due to inflation. If inflation unexpectedly rises, the lender does not get compensated enough for the loss in purchasing power. Likewise the borrower pays too little to compensate the lender for inflation. So it is better to be a borrower in times of unexpected rising inflation.
When inflation unexpectedly falls, then the lender gets compensated too much for inflation. The borrower likewise pays too much for inflation. So it is better to be a lender rather than a borrower during a period of unexpected declining inflation.
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The price paid by a tenant to rent an apartment most closely reflects the cost to the
A) landlord of constructing (or purchasing), maintaining, and operating the apartment. B) landlord of not renting to someone else. C) society of the opportunities thereby forgone. D) tenant of finding an alternative place to live.
Based on the data in the table above, in the adjustment towards the long-run equilibrium
A) money wage rates will rise. B) the aggregate demand curve will shift leftward. C) the short-run aggregate supply curve will shift leftward. D) the short-run aggregate supply curve will shift rightward.