Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 3

Table 16P-4 shows hypothetical levels of average household debt and debt service payments in two years, 2005 and 2008. At what annual interest rate would consumers have had to borrow for the debt-service payments in 2008 to equal the debt-service payments in 2005, despite the increase in household debt? Assume households are paying only interest on their debt and not part of the principal.