If actual inflation turns out to be greater than people had expected, then

Question

a. wealth was redistributed to borrowers from lenders.
b. the real interest rate is unaffected.
c. no redistribution occurred.
d. wealth was redistributed to lenders from borrowers.

Answer 1

If actual inflation turns out to be greater than people had expected, then:

a. wealth was redistributed to borrowers from lenders.

This is because borrowers benefit from inflation, as they pay back their loans with money that is worth less than when they borrowed it. Meanwhile, lenders lose out because the real value of the repayments they receive is reduced.