You borrow some amount of money for five years at a fixed rate of 4%.For the first three years,inflation is 3%,and for the last two years,deflation is 3%.Based on this information,your:

Question

Quizplus · Accepted Answer

During the first three years, the real rate of interest (nominal rate minus inflation) is 1% (4% - 3%). During the last two years, with deflation, the real rate is 7% (4% - (-3%)), which is larger than the nominal rate.

You Borrow Some Amount of Money for Five Years at a Fixed