Who is least likely to be harmed by unexpected inflation?

• A. A retiree living on a fixed nominal pension payment
• B. A household with a fixed-rate mortgage (a net debtor with fixed nominal payments)
• C. A lender holding a long-term fixed-rate bond (a net creditor with fixed nominal receipts)
• D. A worker whose nominal wage is fixed for several years in a contract

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of unexpected inflation and its effects on different economic agents. Unexpected inflation reduces the real value of fixed nominal payments, which means that those who receive fixed nominal amounts lose purchasing power, while those who pay fixed nominal amounts benefit.
2. Step 2: Analyze the situation of a retiree living on a fixed nominal pension. Since the pension payment is fixed in nominal terms, unexpected inflation will erode the real value of the pension, harming the retiree.
3. Step 3: Consider a household with a fixed-rate mortgage (a net debtor with fixed nominal payments). Because the mortgage payments are fixed in nominal terms, unexpected inflation reduces the real burden of these payments, effectively benefiting the debtor.
4. Step 4: Examine a lender holding a long-term fixed-rate bond (a net creditor with fixed nominal receipts). Unexpected inflation reduces the real value of the bond payments received, harming the lender.
5. Step 5: Look at a worker whose nominal wage is fixed for several years. Unexpected inflation reduces the real wage, harming the worker since their purchasing power declines.