Essay
You take out a loan of $8,000, and the bank (expecting an inflation rate of 3.5%) asks you to pay an interest rate of 8% per year.
(a) Suppose that the actual inflation rate turns out to be 2.8%. Who gains and who loses?
(b) Suppose that the actual inflation rate turns out to be 4.1%. Who gains and who loses?
Correct Answer:
Verified
Correct Answer:
Verified
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