Assume That the Real Rate of Interest Is 5 Percent

question 43

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 10 percent,

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

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Definitions:

Autonomy

The capacity to make an informed, uncoerced decision; often related to the ability of individuals to govern themselves.

Competence

The quality or state of having sufficient knowledge, judgment, skill, or strength for a particular task.

Identity

The fact of being who or what a person or thing is; a distinct personality of an individual regarded as a persisting entity.

Role Confusion

Occurs when individuals are unsure about their place or role in society, often experienced during adolescence as part of identity development.