Suppose Mike Agrees to Borrow $100 from Renee for One

question 111

Multiple Choice

Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%.They both expected the inflation rate to be 2% during the one-year period.However,during that year the inflation rate was actually 1%.Which of the following has occurred?

• A) The unexpectedly low inflation rate has redistributed $1 from Mike to Renee
• B) The unexpectedly low inflation rate has redistributed $5 from Mike to Renee
• C) The unexpectedly high inflation rate has redistributed $1 from Mike to Renee
• D) There have not been any redistribution costs to either party
• E) The unexpectedly low inflation rate has redistributed $1 from Renee to Mike

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Definitions:

Variable Cost

Expenses that vary directly with the level of production or sales, including costs for raw materials and direct labor.

Mixing Machines

Equipment used in various industries such as food, pharmaceuticals, and chemicals to combine or blend different ingredients into a homogeneous mixture.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a specified period.

Variable Cost

Expenses that change in proportion with production output or business activity level.