When the Inflation Rate Ends Up Being Lower Than Expected

question 8

Multiple Choice

When the inflation rate ends up being lower than expected,

• A) Everyone benefits because money is cheaper.
• B) Everyone benefits because prices do not increase.
• C) Lenders of fixed rate mortgages generally benefit because they will make higher profits than they had calculated.
• D) Borrowers with fixed rate loans will benefit because their purchasing power will not decline as much.

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Definitions:

Net Accounts Receivable

The amount of money owed to a company by its customers for goods or services provided, after accounting for any allowances for doubtful accounts.

Allowance Method

An accounting technique used to estimate bad debts and adjust accounts receivable to reflect only receivables expected to be collected.

Uncollectible Account

A receivable that a company has deemed unlikely ever to be collected and is therefore written off as a bad debt expense.

Trade Accounts Receivable

Amounts owed by customers to a business, specifically from sales transactions.