Explain how the real interest rate could be negative and how this situation would benefit the borrower
What will be an ideal response?
When people borrow money, they pay a nominal interest rate to the lender. Inflation decreases the real buying power of the payments made to repay the loan. If the inflation rate is greater than the nominal interest rate, then the real interest rate is negative. In this case, the lender actually loses by lending money to the borrower because the quantity of goods and services the lender can buy with the proceeds of the loan has actually decreased.
You might also like to view...
Intermediate goods are excluded from GDP because
A) their inclusion would involve double counting. B) they represent goods that have never been purchased so they cannot be counted. C) their inclusion would understate GDP. D) the premise of the question is incorrect because intermediate goods are directly included in calculating GDP.
If a supply curve is a horizontal line, supply is said to be
A) unit elastic. B) inelastic. C) perfectly elastic. D) perfectly inelastic.
Property taxes ______ tax deductible and home equity loans ____ tax deductible (on federal income tax returns).
A. are; are B. are not; are not C. are; are not D. are not; are
What were the reasons for selecting the U.S. dollar as the currency to which the other 43 countries agreed to peg their currencies as part of the Bretton Woods System?
What will be an ideal response?