A lender need not be penalized by inflation if the:
A)long-term rate of inflation is less than the short-term rate of inflation
B)short-term rate of inflation is less than the long-term rate of inflation
C)lender correctly anticipates inflation and increases the nominal interest rate accordingly
D)inflation is unanticipated by both borrower and lender
E)long-term rate of inflation is the same as the short-term rate of inflation

Question

Quizplus · Accepted Answer

A lender can avoid being penalized by inflation if they correctly anticipate inflation and increase the nominal interest rate accordingly. This means that they are adjusting for expected inflation and maintaining the purchasing power of their investment. The other options do not necessarily provide a solution for the lender to avoid being penalized by inflation.

A Lender Need Not Be Penalized by Inflation If The