Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

Question

June Reynolds

Business

19 November, 15:36

Suppose you lend $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the lender? An inflation rate

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Answers (1)

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Isai · Answer 1

0%

Explanation:

Inflation rate shows a measure of rate at which the average price of a selected goods and services increases over time. It is usually expressed in percentage and shows how the strength of a currency is decreasing.

For the lender, if the inflation rate increases, the purchasing power of the interest the lender would have gotten would be small, the value of the money would have reduced therefore it would be better for the lender if the inflation rate is 0%