Negative inflationary surprises lead to a(n):. A) increase in the real interest rate.
B) redistribution of wealth from borrowers to lenders.
C) decline in the nominal interest rate.
D) decline in inflation risk for lenders.
E) redistribution of wealth from lenders to borrowers.

increase in real interest rate

Explanation:

Negative inflationary surprises lead to an increase in the real interest rate. The real interest rate is simply defined as the rate of interest that a saver, investor, or a lender will receive after inflation ahs been allowed.

It should be noted that the real interest rate is the nominal interest rate minus inflation. Therefore, a negative inflationary surprises lead to a rise in the real interest rate.

Journal entries

Explanation:

The journal entries are as follows

Encumbrance outstanding Dr $6,000

        To encumbrance $6,000

(Being the receipts of the supplies is recorded )

Expenditure $6,000

   To  vouchers payable       $6,000

(Being the approval of the invoice approval is recorded)

Only these two entries are recorded in the city of island grove books