Suppose That Bill Expects the Inflation Rate to Be 10

question 92

True/False

Suppose that Bill expects the inflation rate to be 10 percent and he borrows $8,000 from a local bank to purchase a car. He agrees to pay the loan back in a year at an interest rate of 10 percent. But over the following 12 months, the inflation rate turns out to be 5 percent. This implies the bank will experience an increase in real income.