Consider two scenarios. In the first, the nominal interest rate is 6 percent and the expected rate of inflation is 4 percent. In the second, the nominal interest rate is 5 percent and the expected rate of inflation is 2 percent. In which situation would you rather be a lender? In which would you rather be a borrower?

Question

Sierra Evans

Business

5 October, 09:23

Consider two scenarios. In the first, the nominal interest rate is 6 percent and the expected rate of inflation is 4 percent. In the second, the nominal interest rate is 5 percent and the expected rate of inflation is 2 percent. In which situation would you rather be a lender? In which would you rather be a borrower?

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Answers (1)

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Jayce Newman · Answer 1

In the first situation would you rather be a borrower

In the second situation would you rather be a lender

Explanation:

For the first situation you as a borrower you want the lowest Real Interest rate (2%)

For the second situation you as a lender you want the highest Real interest rate (3%)