If a Lender Expects Inflation to Be 5 Percent, and After

Multiple Choice

If a lender expects inflation to be 5 percent, and after a loan is made, actual inflation is 10 percent, which of the following will be true?

A) The lender will receive a lower real interest rate than he expected.
B) The loan will be repaid with dollars that are worth more than the lender expected.
C) The nominal rate of interest can be expected to fall in the future.
D) The lender will gain at the expense of the borrower.