Assume That the Real Rate of Interest Is 5 Percent

question 30

Multiple Choice

Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent. If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 12 percent:

• A) neither the borrower nor the lender benefits from inflation.
• B) both the borrower and the lender lose from inflation.
• C) the borrower benefits from inflation, while the lender loses from inflation.
• D) the lender benefits from inflation, while the borrower loses from inflation.

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Definitions:

Observable Behaviors

Observable behaviors refer to actions or reactions of an organism or system that can be noticed, measured, and recorded by an observer.

Symbolic Interactionism

A sociological perspective focusing on how people use symbols to create meaning and how these meanings shape social interaction and society.

Pragmatism

A philosophical tradition that considers thought to be a tool for prediction, problem solving, and action, emphasizing practical consequences and real effects.

Dynamic Processes

Processes that are characterized by constant change, activity, or progress within a social or natural context.