Suppose You Are a Borrower and You Expect Inflation to Be

question 237

Multiple Choice

Suppose you are a borrower and you expect inflation to be 6 percent over the next year because inflation was 6 percent in the last year. If you do not want to pay more than 2 percent in real terms for any loan you take out, you will not borrow if the interest rate is greater than:

• A)2 percent.
• B)6 percent.
• C)8 percent.
• D)30 percent.

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Definitions:

Placebo

A harmless pill, medicine, or procedure prescribed more for the psychological benefit to the patient than for any physiological effect.

Fertilizer

A chemical or natural substance added to soil or land to increase its fertility.

Sunlight

Electromagnetic radiation emitted by the Sun, essential for life on Earth, influencing climate and weather patterns and providing energy for photosynthesis in plants.

Tomato Yield

The quantity of tomatoes that is produced in a particular area or by a specific plant, often measured in weight or units per area.