A borrower and a lender agree on a mortgage interest rate. If inflation turns out to...
A borrower and a lender agree on a mortgage interest rate. If inflation turns out to be less than expected
A. the actual real interest rate will be less than the expected real interest rate. B. the actual nominal interest rate will be higher than expected. C. the actual nominal interest rate will be less than expected. D. the actual real interest rate will exceed the expected real interest rate.
Homework Answers
D is true
Since the inflation rate is lesser than expected real rate will be higher than expected. This is because a nominal rate has been decided and the real rate= Nominal rate - inflation. Hence the expected real rate will be lower than the actual real rate.
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A borrower and a lender agree on a mortgage interest rate. If inflation turns out to...
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