Which of the following is an example of someone with inflationary expectations taking a step designed to insulate themselves from the higher expected rates of inflation?
A) a consumer deciding to delay the purchase of a new home or automobile
B) a consumer who borrows money at a fixed interest rate in order to purchase a new home or automobile
C) an investor who borrows funds at an adjustable money interest rate (one that automatically increases with higher inflation)
D) a home buyer who borrows funds at a variable interest rate

Question

Quizplus · Accepted Answer

Borrowing money at a fixed interest rate would insulate the borrower from the expected higher rates of inflation because the interest rate would not increase with inflation. Delaying the purchase of a new home or automobile (choice A) is not necessarily an example of insulating oneself from higher inflation, as it could be due to a variety of other factors such as personal financial constraints. Borrowing funds at an adjustable interest rate (choice C) or a variable interest rate (choice D) would not insulate the borrower from higher inflation, as the interest rates would increase with inflation.

Which of the Following Is an Example of Someone with Inflationary