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.

Question

Quizplus · Accepted Answer

The most beneficial rate of inflation for a borrower is one that is higher than the difference between the nominal interest rate (12 percent) and the expected real interest rate (5 percent), which is 7 percent. A higher inflation rate reduces the real value of the money repaid, benefiting the borrower.

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