If the economy experiences unexpected inflation, then the real interest rate will be less than its equilibrium rate, and wealth will be distributed from lenders to borrowers.
A prolonged increase in the average price of goods and services across an economy is referred to as inflation. It reflects a decline in the purchasing power of a currency that is used in the economy. As a result, purchasing the same amount of products and services requires more currency units. Your purchasing power is reduced, whether it is for rent, bread, toothpaste, or healthcare.
When prices increase faster than salaries, inflation results in a decline in buying power. It makes people spend more dollars, euros, or other currencies to purchase basics, which might put the typical consumer in a tight spot financially.
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