If Inflation Is Expected by Both Borrowers and Lenders, Then

question 53

Multiple Choice

If inflation is expected by both borrowers and lenders, then we would expect

• A)real rates to be higher than nominal rates of interest.
• B)real rates to be equal to nominal rates of interest.
• C)real rates to be lower than nominal rates of interest.
• D)nominal rates of interest to be less than the expected inflation rate.

---

Definitions:

Civilian Goods

Products and services intended for use by the general public rather than for military purposes.

Real Cost

The total cost of producing a good or service, including the opportunity cost of alternative uses of resources and inputs.

Wartime Shortages

Periods during war when there is a lack of availability of essential goods and resources due to increased demand and disrupted supply chains.

Opportunity Cost

The benefit missed out on when choosing one alternative over another, emphasizing the impact of choice on resource allocation.