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

If inflation is higher than expected, the fixed interest rates that the bank has already lent money at will have a lower real value (purchasing power) than expected. This means that the bank's real income will be lower, resulting in negative real income effects.

If a Bank Has Already Lent Money at Fixed Interest