If a borrower arbitrarily gains purchasing power as the result of a particular loan agreement, then
A)actual inflation was greater than expected inflation.
B)actual inflation was equal to expected inflation.
C)actual inflation was less than expected inflation.
D)the real interest rate was greater than the nominal interest rate.

Question

Quizplus · Accepted Answer

If a borrower gains purchasing power as the result of a loan agreement, it means that the loan they received was worth more than the amount they borrowed. This can happen when actual inflation is greater than expected inflation, making the repayment amount worth less in real terms than the original borrowed amount. Therefore, the correct option is A, actual inflation was greater than expected inflation.

If a Borrower Arbitrarily Gains Purchasing Power as the Result