The higher you think the inflation rate is likely to be,
A)the higher the nominal interest rate you will offer as a borrower and want as a lender
B)the higher the nominal interest rate you will offer as a borrower,and the lower the rate you will want as a lender
C)the lower the nominal interest rate you will offer as a borrower and want as a lender
D)the higher the real interest rate you will want as a lender
E)the higher the real interest rate you will offer as a borrower

Question

Quizplus · Accepted Answer

If inflation is expected to be high, lenders will demand a higher nominal interest rate to compensate for the loss in purchasing power of their money. On the other hand, borrowers will have to offer a higher nominal interest rate to compensate the lenders for the expected inflation.

The Higher You Think the Inflation Rate Is Likely to Be