Consider the situations of a lender and a borrower of money.Which of the following situations is most advantageous to the lender?
A)inflation rate of 0% nominal interest rate of 2%
B)inflation rate of 2% nominal interest rate of 7.5%
C)inflation rate of -1% nominal interest rate of 3%
D)inflation rate of 2% nominal interest rate of 4%
E)inflation rate of 3% nominal interest rate of 7.5%

Question

Quizplus · Accepted Answer

A higher nominal interest rate relative to the inflation rate is more advantageous to the lender as it increases the real value of the loan. In option B, the nominal interest rate (7.5%) is higher than the inflation rate (2%), which means the lender will earn a higher return on the loan in real terms.

Consider the Situations of a Lender and a Borrower of Money.Which