Which group benefits the most from unexpected inflation?
A. Savers
B. Fixed-income earners
C. Borrowers
D. Bank depositors
Answer (2)
The group that benefits the most from unexpected inflation is C. Borrowers.Unexpected inflation reduces the real value of money. Borrowers repay their loans with money that is worth less than when they borrowed it, effectively reducing the real cost of their debt. In contrast, savers, fixed-income earners, and bank depositors lose purchasing power because the money they receive or have saved loses value.
The correct answer is letter C. BorrowersBorrowers benefit from unexpected inflation because the money they pay back is worth less than the money they borrowed. Inflation reduces the purchasing power of money, so when inflation is higher than expected, borrowers repay their loans using money that is not as valuable anymore.For example, let’s say you borrowed ₱10,000 from a bank with a 5% interest rate, and at the time, inflation was expected to be 2%. If inflation suddenly rises to 6%, the bank actually loses because the money it gets back is worth less than it planned. But you, the borrower, benefit because you're paying back in “cheaper” pesos.In the Philippine setting, this can happen when inflation rises faster than interest rates. It helps people who have borrowed money—such as those who took housing loans or small business loans—because their monthly payments stay the same while the value of those payments goes down due to inflation.
