Suppose you borrow $5000 at an interest rate of 8%.If the expected real interest rate is 3%,then the rate of inflation over the upcoming year that would be most beneficial to you would be

Question

Quizplus · Accepted Answer

If the inflation rate is greater than 5%, the real interest rate (nominal rate minus inflation rate) would be less than 3%, which would be beneficial to the borrower as it reduces the real cost of borrowing.

Suppose You Borrow $5000 at an Interest Rate of 8