Which group benefits the most from unexpected inflation?
A. People living on fixed incomes
B. Borrowers with fixed interest loans
C. Banks and lenders
D. Savers with high-yield accounts
Answer (1)
The correct answer is letter B. Borrowers with fixed interest loansBorrowers benefit from unexpected inflation because they repay their loans with money that has less value than when they first borrowed it. When a loan has a fixed interest rate, the borrower already agreed to pay a certain amount of interest over time. If inflation rises unexpectedly, the real value of those payments becomes lower, making it easier for the borrower to repay.Imagine someone in the Philippines borrowed ₱100,000 at a 5% fixed interest rate when inflation was expected to be 2%. If inflation suddenly becomes 6%, the real cost of the money they pay back is lower, meaning they are actually paying less in purchasing power. This is why borrowers gain from inflation, while lenders and savers lose.
