If Expected Inflation Is Higher Than Actual Inflation, Then

question 109

Multiple Choice

If expected inflation is higher than actual inflation, then:

• A) wealth will be redistributed from lenders to borrowers.
• B) wealth will be redistributed from borrowers to lenders.
• C) both borrowers and lenders will gain wealth.
• D) both borrowers and lenders will lose wealth.

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Definitions:

Risk Premium

The additional return expected by an investor for taking on a higher level of risk.

Risky Asset

An asset that has a significant degree of uncertainty in its returns, often leading to variability in its investment outcomes.

Normal Distribution

A statistical function that represents the distribution of many types of data; it’s symmetric and describes data that clusters around a mean or average.

Standard Deviation

A statistical measure that quantifies the dispersion of a dataset relative to its mean, used to gauge volatility in financial markets.