If the Expected Inflation Rate Is 3 Percent, the Nominal

Multiple Choice

If the expected inflation rate is 3 percent, the nominal interest rate is 5 percent, and the actual inflation rate turns out to be 4 percent, then the realized real interest rate is_____than the expected real interest rate and borrowers_____ relative to lenders.

A) less; gain
B) less; lose
C) greater; gain
D) greater; lose