Essay
A small business owner has a line of credit from a bank with a nominal interest rate of seven percent.For several years,the price level has been rising at an annual rate of two percent,but the owner has just read in the newspaper that economists expect next year's inflation rate to be four percent or more.Assume that this owner may either continue the line of credit at seven percent,or renegotiate to alter both the size of the credit and the interest rate.What reason might there be for the owner to keep the credit terms as is? What argument might justify changing the credit agreement?
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