Suppose You Lend $1,000 at an Interest Rate of 10

question 177

Multiple Choice

Suppose you lend $1,000 at an interest rate of 10 percent over the next year.If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

• A)less than 6 percent.
• B)greater than 6 percent.
• C)equal to 6 percent.
• D)equal to 4 percent.

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Definitions:

Recession

A period of temporary economic decline during which trade and industrial activities are reduced, typically identified by a fall in GDP in two successive quarters.

Deregulation

The process of reducing or eliminating government rules controlling how businesses can operate, often to increase market competition.

Subsidization

The act of providing financial aid or support by a government or organization to lower the cost of producing goods or services.

Monopoly

A market structure characterized by a single seller, offering a unique product or service with no close substitutes, leading to the control of a particular market.