Consider the situations of a lender of money and a borrower of money. Which of the following situations is least burdensome for the borrower?
A)nominal interest rate of 8% and an inflation rate of 2%
B)nominal interest rate of 10% and an inflation rate of 1%
C)nominal interest rate of 15% and an inflation rate of 8%
D)nominal interest rate of 4% and an inflation rate of 4%
E)nominal interest rate of 29% and an inflation rate of 21%

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. In this case, the real interest rate is 4% - 4% = 0%. This means that the borrower is not paying any interest on the loan.

Consider the Situations of a Lender of Money and a Borrower