Suppose You Borrow $8000 for One Year and at the End

question 29

Essay

Suppose you borrow $8000 for one year and at the end of the year you repay the $8000 plus $600 of interest.The expected inflation rate was 3.5% at the time you took out the loan,but the actual inflation rate turned out to be 2.5%.What was the expected real interest rate at the time of the loan? What was the actual real interest rate you paid? Who gained and who lost from the difference in the expected and actual inflation rates?

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Definitions:

Drive

An innate, biologically determined urge to attain a goal or satisfy a need.

Ghrelin Protein

A hormone produced mainly by the stomach that stimulates appetite and signals the brain to increase food intake.

Leptin Protein

A hormone produced by fat cells that helps to regulate body weight by signaling satiety to the brain.

Glucose Receptors

Proteins on the cell surface or within cells that bind glucose and facilitate its transport into the cell, playing a critical role in regulation of blood sugar levels.