Reading 26: Inflation - LOS c ～ Q1-3

答案和详解如下：

1.Generally, if there is unanticipated inflation in the economy:

A)   lenders benefit and borrowers lose.

B)   borrowers benefit and lenders lose.

C)   both borrowers and lenders benefit.

D)   unanticipated inflation will not affect borrowers or lenders.

The correct answer was B)

In a period of unanticipated inflation, borrowers benefit and lenders lose. Lenders tend to hold long-term contracts in which they will receive a fixed dollar payment. Borrowers who are paying on a long-term fixed rate contracts will win at the lenders expense when there is unanticipated inflation because the borrowers will be able to repay the loan with cheaper dollars.

2.Which of the following statements regarding the effects of unanticipated inflation on the labor market and the market for financial capital is most accurate?

A)   When the actual rate of inflation is higher than expected, employees receive less compensation for their labor and this represents a gain for employers at the expense of their employees.

B)   When the actual rate of inflation is declining, real wage rates of employees are lower than employers expected to pay, and employers gain at the expense of their employees.

C)   When there is unanticipated inflation, interest rates are not set high enough to compensate borrowers for the declining value of money so lenders gain at the expense of borrowers.

D)   When inflation is expected and fails to materialize, then interest rates are set too low, and borrowers gain at the expense of lenders.

The correct answer was A)

Unanticipated inflation redistributes income between employees and employers because employees’ real wage rate will not be high enough. Company profits will be higher with the lower wage expense, so employers gain at the expense of employees. If inflation decreases unexpectedly, real wage rates of employees are higher than employers expected to pay, and employees gain at the expense of their employers. With regard to interest rates, when there is unanticipated inflation, interest rates are not set high enough to compensate lenders for the declining value of money so borrowers gain at the expense of lenders. When inflation is expected, but fails to materialize, then interest rates are set too high, and lenders gain at the expense of borrowers.

3.Edward Murray and Kelvin Rippen, economists at M-R Associates, are asked for their opinions on the effects of higher-than- expected inflation. Murray states that higher-than-expected inflation hurts lenders and helps borrowers. Rippen contends that higher-than-expected inflation causes the real interest rate to be lower than expected.

Regarding the statements made by Murray and Rippen:

B)                   Incorrect                               Correct

C)                    Correct                                Correct

D)                   Incorrect                              Incorrect

The correct answer was C)

When inflation exceeds expectations, the real interest rate paid on loans is less than originally expected, helping borrowers and hurting lenders. Both Murray and Rippen are correct.