James Took Out a Fixed-Interest-Rate Loan When the CPI Was

question 49

Multiple Choice

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

• A)higher than he had expected, and the real value of the loan is higher than he had expected.
• B)higher than he had expected, and the real value of the loan is lower than he had expected.
• C)lower than he had expected, and the real value of the loan is higher than he had expected.
• D)lower then he had expected, and the real value of the loan is lower than he had expected.

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Definitions:

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Payments made by oil and gas producing companies to landowners or the government for the right to extract natural resources.