Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation
A)equal to 0 percent.
B)greater than 7 percent.
C)equal to 7 percent.
D)less than 7 percent.
E)equal to 3 percent.

Question

Quizplus · Accepted Answer

The most beneficial rate of inflation for the borrower would be greater than 7 percent because it would reduce the real interest rate below the expected 5 percent, effectively decreasing the real cost of borrowing.

Suppose You Borrow $1,000 at an Interest Rate of 12