2. Most people in the United States have grown accustomed to a modest inflation rate of around 2% to 3%. Who would gain and who would lose if inflation unexpectedly came to a complete stop over the next 15 or 20 years?
If inflation came to an unexpected and complete stop over the next 15 or 20 years, the inflation rate would be zero, which of course is less than the expected inflation rate of 2% to 3%. Because the real interest rate is the nominal interest rate minus the inflation rate, the real interest rate on a loan would be higher than expected, and lenders would gain at the expense of borrowers. Borrowers would have to repay their loans with funds that have a higher real value than had been expected.