Explain why you would rather be a borrower during a period of unexpected rising inflation, and a lender during a period of unexpected declining inflation
What will be an ideal response?
The nominal interest rate includes a charge to compensate the lender for the loss in the purchasing power due to inflation. If inflation unexpectedly rises, the lender does not get compensated enough for the loss in purchasing power. Likewise the borrower pays too little to compensate the lender for inflation. So it is better to be a borrower in times of unexpected rising inflation.
When inflation unexpectedly falls, then the lender gets compensated too much for inflation. The borrower likewise pays too much for inflation. So it is better to be a lender rather than a borrower during a period of unexpected declining inflation.
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If the interest rates available on investments in two countries were the same, you would be less likely to invest in assets of the country: a. whose currency was likely to appreciate
b. whose currency was likely to depreciate. c. whose currency had the greatest exchange value. d. none of the above; it would not matter what was likely to happen to a country's currency exchange rate.
Other things the same, if a country's domestic investment decreases, then
a. net capital outflow rises, so net exports rise. b. net capital outflow rises, so net exports fall. c. net capital outflow falls, so net exports rise. d. net capital outflow falls, so net exports fall.