Which of the following is a definition of the real interest rate in a world with a positive inflation rate?
a. The percentage increase in the borrower's purchasing power from taking a loan
b. The percentage decrease in the borrower's dollars from taking a loan
c. The percentage increase in the lender's purchasing power from making a loan
d. The percentage increase in the lender's dollars from making a loan
e. The percentage decrease in the lender's dollars from making a loan
C
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Banks are better at solving the stockholder-lender conflict than rating agencies when they
A) are allowed to hold a substantial ownership stake in the borrowing firm. B) steer clear of holding any ownership stake in the borrowing firm. C) operate in markets-oriented financial systems. D) issue individually-approved loans rather than lines of credit.
Suppose a market basket of goods and services costs $400 in the base year and the consumer price index (CPI) is currently 125 . This indicates the price of the market basket of goods is now:
a. $275. b. $425. c. $500. d. $525.