Question

If inflation rises unexpectedly by $5\%$, would a state government that had recently borrowed money to pay for a new highway benefit or lose?

Short answer

If inflation rises unexpectedly by $5\%$, a state government that had recently borrowed money to pay for a new highway benefit.

Step-by-step solution

Step 1. Inflation Rate.

The inflation rate is an increase in the price of goods and services over time that decreases the purchasing power of money.

Step 2. Inflation rise unexpectedly.

Unexpectedly rising by $5\%$in inflation, the state government would benefit because the tax revenue for the state government would be increased due to inflation, and also the loan would be repaid in a less value dollar than it borrowed.