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:

Carbohydrate

Organic compounds made up of carbon, hydrogen, and oxygen that are a major source of energy in the diet of animals, including sugars, starches, and cellulose.

Nucleic Acids

are biopolymers essential for all known forms of life, including DNA and RNA, which carry genetic information and play roles in protein synthesis.

Phosphate

A chemical derivative of phosphoric acid, containing the phosphate ion, PO4^3-, which plays a significant role in biological molecules such as DNA and ATP.