Suppose that Lindsay takes out a loan from the Bank of Free Lending. During the life of the loan, there is some unexpected inflation that the bank did not account for. Who benefits from this unexpected inflation? O Bank of Free Lending O Lindsay Both Lindsay and Bank of Free Lending benefit There is no effect on Lindsay or the Bank of Free Lending

Suppose that Lindsay takes out a loan from the Bank of Free Lending. During the life of the loan, there is some unexpected inflation that the bank did not account for. Who benefits from this unexpected inflation? O Bank of Free Lending O Lindsay Both Lindsay and Bank of Free Lending benefit There is no effect on Lindsay or the Bank of Free Lending

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider borrowers and lenders who agree to loans with fixed nominal interest rate- If inflation is lower than what the borrowers and lenders expected, then who benefits from higher real interest rates? A) Only the borrowers benefit. B) Only the lenders benefit. OC) Both borrowers and lenders benefit. D) Neither borrowers nor lenders benefit.
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Suppose you'll have an annual nominal income of $20,000 for each of the next three years, and the inflation rate is 5 percent per year. Hint: Present value = Future value = (1 + Growth in prices)* = Real value of next year's income = Next year's income ÷ (1+ Growth in prices) Instructions: Round your responses to the nearest whole dollar. a. Find the real value of your $20,000 salary for each of the next three years. Year 1: $ Year 2: $ Year 3: $ b. If you have a COLA in your contract, what is the real value of your salary for each year? Year 1: $ 19047 Year 2: $ 18144 Year 3: $ 17276
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A rise in the amount of inflation, given a fixed nominal interest rate will cause: A. The nominal interest rate to rise B. The nominal interest rate to fall C. The real interest rate to rise D. The real interest rate to fall
The ___ is the nominal interest rate minus the rate of inflation. Question 13 options: real GDP real interest rate annualized interest rate nominally adjusted
ces For each of the following years, determine the real interest rate. Find the difference between this rate and the desired real interest rate and explain how any difference affects borrowers and lenders. Write out percentage rates as whole numbers e.g. 5%. a. In year 1, the nominal interest rate is 7%, the inflation premium on loans is 2%, and actual rate of inflation is 3%. The real interest rate is [ %, the desired real interest is b. In year 2, the nominal interest rate is 8%, the inflation premium The real interest rate is%, the desired real interest is %, borrowers are [(Click to select) and lenders are [(Click to select) is 3%, and the actual rate of inflation is 1%. ]%, borrowers are [(Click to select) and lenders are [(Click to select) is 1%. c. In year 3, the nominal interest rate is 6%, the inflation premium is 1%, and the actual rate of inflation The real interest rate is %, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select)