In the "Inflation and Interest Rate" experiment (see an overview of the results below), several lenders made negative "surplus" (= earnings). What is the likeliest explanation for the lenders losing "money" in this experimental market? Outcomes by Groups (Expected) Inflation Rate = 5% Group Equilibrium Interest Rate (Nominal) Inflation Rate Real Interest Rate #Transactions Lender Surplus Borrower Surplus 972 N/A 4.50 5.00 11.50 2050 Average 1.96 1.50 0.00 21.00 -1.03 19.43 Group 1 7.00 5.00 1.90 2.00 3.19 Group 2 7.50 10.00 -2.27 4.00 -3.32 16.19 27.18 Group 3 900 1000 -0.01 4.00 2.50 12 18 Group 4 5.00 1000 -364 5.00 -9.77 34.59 Group 5 8.00 0.00 8.00 2.00 0.90 15.00 Group 6 10.25 10.00 0.23 4.00 6.68 11.45 Lenders made decisions based on the nominal interest rate, not the expected real interest rate, which was higher than the nominal interest rate. Lenders made decisions based on the expected real interest rate, not the nominal interest rate, which was lower than the real interest rate. Lenders made decisions based on the nominal interest rate, not the expected real interest rate, which was lower than the nominal interest rate. Lenders made decisions based on the expected real interest rate, not the nominal interest rate, which was higher than the real interest rate.
In the "Inflation and Interest Rate" experiment (see an overview of the results below), several lenders made negative "surplus" (= earnings). What is the likeliest explanation for the lenders losing "money" in this experimental market? Outcomes by Groups (Expected) Inflation Rate = 5% Group Equilibrium Interest Rate (Nominal) Inflation Rate Real Interest Rate #Transactions Lender Surplus Borrower Surplus 972 N/A 4.50 5.00 11.50 2050 Average 1.96 1.50 0.00 21.00 -1.03 19.43 Group 1 7.00 5.00 1.90 2.00 3.19 Group 2 7.50 10.00 -2.27 4.00 -3.32 16.19 27.18 Group 3 900 1000 -0.01 4.00 2.50 12 18 Group 4 5.00 1000 -364 5.00 -9.77 34.59 Group 5 8.00 0.00 8.00 2.00 0.90 15.00 Group 6 10.25 10.00 0.23 4.00 6.68 11.45 Lenders made decisions based on the nominal interest rate, not the expected real interest rate, which was higher than the nominal interest rate. Lenders made decisions based on the expected real interest rate, not the nominal interest rate, which was lower than the real interest rate. Lenders made decisions based on the nominal interest rate, not the expected real interest rate, which was lower than the nominal interest rate. Lenders made decisions based on the expected real interest rate, not the nominal interest rate, which was higher than the real interest rate.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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