If a borrower and a lender agree on a long-term loan at a nominal interest rate that is fixed over the duration of the loan, how will a higher-than-expected rate of inflation impact the parties if at all?
What will be an ideal response?
A higher-than-expected rate of inflation will benefit the borrower who will end up paying a lower real interest rate than planned, and so will be better off. The lender, on the other hand, will end up receiving a real interest rate that is less than what was planned so the lender will be harmed.
You might also like to view...
Which of the following does free trade encourage?
A) higher rates of economic growth B) more rapid spread of technology C) domestic industries' access to larger markets D) all of the above
The concept of "scarcity" implies that: a. all output combinations below a nation's production possibilities frontier is unattainable
b. a nation should allocate its resources to the production of only one good. c. a nation is limited in its capacity to produce goods and services by its available resources and technology. d. all production combinations above a nation's production possibilities frontier are inefficient.
The institutional production possibilities frontier illustrates the different combinations of goods that society can obtain given
A) the constraints of finite resources and the current state of technology. B) the price level. C) its institutional constraints. D) the natural rate of unemployment. E) the constraints of finite resources and the current state of technology and institutional constraints.
Marginal cost refers to the incremental cost arising from a decision.
Answer the following statement true (T) or false (F)