A lender need not be penalized by inflation if the
A)long-term rate of inflation is less than the short-term rate of inflation.
B)short-term rate of inflation is less than the long-term rate of inflation.
C)lender correctly anticipates inflation and increases the nominal interest rate accordingly.
D)inflation is unanticipated by both borrower and lender.

Question

Quizplus · Accepted Answer

If a lender correctly anticipates inflation, they can adjust the nominal interest rate to maintain their real rate of return, thus avoiding being penalized by inflation.

A Lender Need Not Be Penalized by Inflation If the