Unexpected Inflation

Firstly, Wheelan addresses the fact that inflation hurts the lenders but it helps the debtors. If inflation occurs, when the debtor has to pay the lender back, he might still give him the same dollar amount however the value of that dollar and the purchasing power of that same amount of money has gone done due to inflation. Thus, the debtor is left better off than the lender. This creates a societal problem in the end because banks and people who lend money are not going to be willing to lend money because they don’t know what inflation is going to be, so they don’t know if they money they will receive back will have the same purchasing power. Thus, the money people would have used from the bank to promote economic growth through business as well as buy things and thus increase the GDP is no longer happening because of unexpected inflation causing people to be apprehensive about lending.