Posted by **Chloe** on Saturday, July 28, 2007 at 8:31pm.

Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected.

Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose?

Think it through. Then take a shot.

lender lose?

borrowers gain?

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