If a bank has already lent money at fixed interest rates,then during a period of higher-than-expected inflation,it experiences
A)Negative real income effects.
B)Hyperinflation.
C)Rising real interest rates.
D)Deflation.

Question

Quizplus · Accepted Answer

Inflation erodes the value of money over time, making the fixed interest rate received by the bank worth less in real terms. This will result in negative real income effects for the bank.

If a Bank Has Already Lent Money at Fixed Interest