Question 3. if inflation turns out to be lower than expected, then:
a) savers benefit.
b) borrowers benefit while savers are not affected.
c) savers and borrowers are equally affected.
d) savers are adversely affected but borrowers benefit.

The correct answer is a) savers benefit.

Explanation:

The effects of inflation on the distribution of income consist essentially in the displacement of wealth from creditors to debtors. The individual who has lent money will observe when he recovers that what he receives has less value than what he lent. Savers are punished with the loss of value of their funds. Those who have spent above their income, on the other hand, receive a prize for unpredictability and waste. In general, all recipients of fixed incomes (retirees, pensioners, rentiers who own fixed-income securities, homeowners for rent with non-indexed contracts) will reduce the purchasing power of their income. Those who must pay these income (the State, the issuing companies, the tenants) will receive an undeserved benefit.

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