Future Business Leader Achievments (FBLA) Economics Practice Exam

Which group benefits from unanticipated inflation?

1. People who put their money in fixed-rate savings accounts

2. Lenders

3. People on fixed incomes

4. People who own their homes

The correct answer is: People who own their homes

Unanticipated inflation benefits people who own their homes primarily because their property values and rents are likely to increase over time. When inflation occurs unexpectedly, the real value of money decreases, meaning that the amount of money owed (in the case of a mortgage, for instance) also loses value in real terms. Homeowners with fixed-rate mortgages benefit because their monthly payments remain the same, while their home's market value appreciates alongside inflation. This increases their equity and overall financial position. The other groups, while impacted in various ways by inflation, do not experience the same advantages from unanticipated inflation. Individuals with fixed-rate savings accounts may see the purchasing power of their interest earnings erode, lenders receive repayments in depreciated currency, and individuals on fixed incomes face increased costs of living without an increase in their income to match inflation. Thus, homeowners are positioned to benefit more significantly in environments of unanticipated inflation.