Question

You have successfully secured the mortgage of worth in $1,000,000 from the Bank to purchase a house. After the contract has been written, inflation in the economy turned out to lower than what was expected. Who gained and lost from this development? Explain

Answer 1

Inflation refers to a situation of rise in general price level and fall in the value of money. Inflation can benefit both borrowers and lenders depending on the circumstances.

In the above case, when inflation in the economy turned out to lower than what was expected, the creditor or the lender will gain and the debtors or the borrower will lose. Because the lender will receive dollar payments from the borrower that have a higher real value than it was expected.