Suppose a borrower and lender agree to an interest rate on a loan when inflation is expected to be 6%.The borrower would benefit the most if which of the following inflation rates actually occurred?
A)0%
B)3%
C)6%
D)9%

Question

Quizplus · Accepted Answer

If the actual inflation rate is higher than expected (9% instead of 6%), the real interest rate paid by the borrower is lower, benefiting the borrower.

Suppose a Borrower and Lender Agree to an Interest Rate