Suppose that Lisa lends Alex $1,000, which Alex must repay after one year with an interest payment of 10%. When Lisa lends money to Alex, she expects that the inflation rate over the year will be 3%. However, after she lends the money, the actual inflation rate for the year turns out to be 5%. In this scenario, who gains from the higher than expected inflation rate?

Suppose that Lisa lends Alex $1,000, which Alex must repay after one year with an interest payment of 10%. When Lisa lends money to Alex, she expects that the inflation rate over the year will be 3%. However, after she lends the money, the actual inflation rate for the year turns out to be 5%. In this scenario, who gains from the higher than expected inflation rate?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 3.7P

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