Comparing the situation of a nominal interest rate of 10 percent and an inflation rate of 9 percent with a nominal interest rate of 6 percent and inflation rate of 2 percent,consumers would borrow more in which situation?

Question

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The real interest rate is the nominal interest rate minus the inflation rate. In the first situation, the real interest rate is 1% (10% - 9%), which is lower than the real interest rate in the second situation, which is 4% (6% - 2%). Consumers are more likely to borrow when the real interest rate is lower, as it means the cost of borrowing is effectively cheaper.

Comparing the Situation of a Nominal Interest Rate of 10