Suppose You Are a Borrower and You Expect Inflation to Be

Multiple Choice

Suppose you are a borrower and you expect inflation to be 6 percent over the next year because inflation was 6 percent in the last year. If you do not want to pay more than 2 percent in real terms for any loan you take out, you will not borrow if the interest rate is greater than:

A) 2 percent.
B) 6 percent.
C) 8 percent.
D) 30 percent.