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| https://revel.pearson.com/#/courses/5b0770d4e4b0afc7a90058bf/union/p (133%) a search PEARSON Quiz: Chapter 9 Save for Later Submit Test 25 of 25 Settings Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4 2596 The real interest rate is 1.5% Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%, who gains and who loses from this unanticipated inflation? (Mark all that apply) ? A. Lenders gain from a lower real interest rate ? B. Borrowers gain from a lower real interest rate ? c. Lenders lose from a lower real interest rate ? D. Borrowers lose from a lower real interest rate Click to select your answer(s)

Explanation / Answer

Ans. Instead of 4.25% inflation rate previously, the inflation rate unexpectedly reaches 5.5%. With this scenario, the borrowers will gain from a lower real interest rate. Now the real interest rate will be only 0.25% way lower than the 1.5% previously. The lenders will lose from lower real interest rate as their interest earnings will shrink. So the correct option is B as well as C. Both the options are correct.

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