Suppose You Are a Lender and You Expect Inflation to Be

question 137

Multiple Choice

Suppose you are a lender and you expect inflation to be 4 percent over the next year because inflation was 4 percent in the last year. If you want to earn a real return of 2 percent on any loans you make, you will set the interest rate on your loans equal to:

• A)2 percent.
• B)4 percent.
• C)6 percent.
• D)10 percent.

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