Suppose Mike Agrees to Borrow $100 from Renee for One

Multiple Choice

Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%.They both expected the inflation rate to be 2% during the one-year period.However,during that year the inflation rate was actually 1%.Which of the following has occurred?

A) The unexpectedly low inflation rate has redistributed $1 from Mike to Renee
B) The unexpectedly low inflation rate has redistributed $5 from Mike to Renee
C) The unexpectedly high inflation rate has redistributed $1 from Mike to Renee
D) There have not been any redistribution costs to either party
E) The unexpectedly low inflation rate has redistributed $1 from Renee to Mike