Ms.Take borrowed $1,000 from her bank for one year at an interest rate of 10 percent.During that year,the price level went up by 15 percent.Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Ms. Take borrowed $1,000 from the bank at an interest rate of 10%, which means she has to repay $1,100 in total after one year. However, during that year, the price level increased by 15%, which means that the value of her repayment decreased in terms of purchasing power. Therefore, Ms. Take's repayment will give the bank less purchasing power than it originally loaned her, and option B is correct.

MsTake Borrowed $1,000 from Her Bank for One Year at an Interest