Suppose Mike Agrees to Borrow $100 from Renee for One

question 111

Multiple Choice

Suppose Mike agrees to borrow $100 from Renee for one year at a one-time interest payment of 5%.They both expected the inflation rate to be 2% during the one-year period.However,during that year the inflation rate was actually 1%.Which of the following has occurred?

• A) The unexpectedly low inflation rate has redistributed $1 from Mike to Renee
• B) The unexpectedly low inflation rate has redistributed $5 from Mike to Renee
• C) The unexpectedly high inflation rate has redistributed $1 from Mike to Renee
• D) There have not been any redistribution costs to either party
• E) The unexpectedly low inflation rate has redistributed $1 from Renee to Mike

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Definitions:

Absolute Advantage

The ability of an individual, company, or country to produce a good or service at a lower cost per unit than the cost at which any other entity can produce it.

Opportunity Costs

The loss of potential gain from other alternatives when one particular option is chosen over others.

Predatory Dumping

A practice where a company exports a product at a price significantly lower than its normal value, with the intention to drive out competition in the import country.

Sporadic Dumping

Occurs when a company exports a product at a price significantly lower than the price in its domestic market, but does so irregularly or occasionally.