Economists Forecast the Following Inflation Rates for the Next Four $\begin{array}{ll}\text { Year } & \text { InflationRate } \\\hline 1 & 3 \% \\2 & 4 \% \\3 & 5 \% \\4 & 6 \%\end{array}$

question 63

Multiple Choice

Economists forecast the following inflation rates for the next four years: $\begin{array}{ll}\text { Year } & \text { InflationRate } \\\hline 1 & 3 \% \\2 & 4 \% \\3 & 5 \% \\4 & 6 \%\end{array}$ What inflation adjustment should be included in the interest rate on a three-year loan made today?

• A) 3%, because that's the rate at the time the loan is made and borrowers won't pay any more
• B) 4%, because that's the average expected inflation rate over the life of the loan
• C) 6%, because that's the rate that will exist when the lender is loaning the money out again
• D) 6%, because at a lower rate the lender will have lost purchasing power by the time it lends the money out again

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Definitions:

Requirements Contract

A commercial agreement which obligates a buyer to purchase a seller's production or a seller to supply all demands of the buyer for certain goods or services.

Exclusive Dealing

A contractual agreement in which one party grants another party the sole rights to sell or distribute its goods or services within a specified territory or market.

Agreement

A mutual understanding or arrangement between two or more parties regarding their respective rights and responsibilities.

Exclusive Dealing Agreements

Contracts that restrict a party from buying, selling, or promoting the goods or services of anyone other than the specified party, often used to solidify business relationships and ensure loyalty.