The higher the cost of processing a loan, the __________ the interest rate charged for the loan; the lower the expected inflation rate, the __________ the nominal interest rate.

Question

Quizplus · Accepted Answer

The cost of processing a loan is typically passed on to the borrower in the form of higher interest rates to cover these costs. Expected inflation affects interest rates inversely; lower expected inflation leads to lower nominal interest rates because lenders do not need to compensate as much for the loss of purchasing power over time.

The Higher the Cost of Processing a Loan, the __________