Final answer:
When inflation is completely unanticipated, it makes it difficult to predict the real rate of return on interest-bearing assets, as the future purchasing power of repayments cannot be accurately forecasted.
Step-by-step explanation:
If inflation were always completely unanticipated, then the correct implications would be:
- The real rate of return on interest-bearing assets could not be easily predicted.
When all economic variables such as prices, wages, and interest rates do not adjust immediately and in sync with inflation, it results in problems like unintended redistributions of purchasing power, issues with long-term planning, and blurred price signals. Specifically, in terms of interest-bearing assets, unanticipated inflation means that lenders may receive a lower real return than expected because the money repaid to them is worth less in terms of purchasing power. Additionally, if wages do not rise in line with inflation, individuals will experience a decline in their real wage rates and standard of living. High inflation without proper indexing can be politically challenging and results in economic uncertainty which could hurt both lenders and borrowers. The underlying mention of high inflation rates up to 30% per year in some economies doesn't mean the implication of always negative real interest rates, since these economies typically index rates to accommodate inflation changes.