Unexpected Inflation and Its Impact on Borrowers and Lenders

Unexpected inflation can have a significant impact on borrowers and lenders. When inflation rises unexpectedly, the real value of money decreases, benefiting lenders at the expense of borrowers. This is because lenders receive payments in the future, which are worth less in real terms due to inflation. Conversely, borrowers repay loans with money that is worth less than what they borrowed. Therefore, the correct answer is 'D There is a redistribution from borrowers to lenders.'