Describe How a Lender Can Lose During Inflation If the Inflation

question 163

Essay

Describe how a lender can lose during inflation if the inflation is unanticipated and the loan is a fixed-interest-rate loan.How would a variable-interest-rate loan (one that adjusts over the contract period)eliminate these loses?

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Definitions:

Long-Run Average Cost Curve

A curve showing the lowest possible cost at which a firm can produce any given level of output in the long run when all inputs are variable.

Downward Sloping

Describes a line or curve on a graph that shows a decrease in value as it moves from left to right, often used in economics to describe how changes in price affect demand.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Health Insurance Costs

The expenses associated with medical policies that cover the cost of medical services for the insured.