You Agree to Lend $1,000 for One Year at a Nominal

question 111

Multiple Choice

You agree to lend $1,000 for one year at a nominal interest rate of 10%.You anticipate that inflation will be 4% over that year.If inflation is instead 3% over that year,which of the following is true?

• A)The real interest rate you earn on your money is lower than you expected.
• B)The purchasing power of the money that will be repaid to you will be lower than you expected.
• C)The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation.
• D)The real interest rate you earn on your money will be negative.

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Definitions:

Self-serving Bias

The common habit of a person crediting themselves for positive outcomes or successes but attributing failures to external factors.

Reciprocal Determinism

A concept in social cognitive theory that suggests an individual's behavior is both influenced by and influences their personal factors and the environment.

Poor Officiating

Refers to substandard or inadequate performance by referees or officials in enforcing rules during a sport or game.

Self-perception

The way an individual understands and views oneself, including beliefs about one's own abilities, appearance, and personality.