Suppose future price changes are perfectly anticipated by both borrowers and lenders.If the price level changed, how would the future real interest rate be affected?

Question

Quizplus · Accepted Answer

If future price changes are perfectly anticipated by both borrowers and lenders, the inflation component of nominal interest rates would already be accounted for, resulting in real interest rates that reflect the true cost of borrowing. Therefore, a change in the expected price level would have no effect on the real interest rate.

Suppose Future Price Changes Are Perfectly Anticipated by Both Borrowers