Suppose that Sam and Diane took out a 30-year mortgage in 1973.They are required

Question

Suppose that Sam and Diane took out a 30-year mortgage in 1973.They are required to pay the bank each month from 1974 through2004.

What impact did inflation have on their mortgage payments from1974 through 1980?

4.   The graph below shows trends for themortgage interest rates and inflation rate for an economy.   

Suppose that Sam and Diane took out a 30-year mortgage in 1973.They are required to pay the bank each month from 1974 through2004.

What impact did inflation have on their mortgage payments from1974 through 1980?

A.   Inflation caused the value of theirmortgage payments to decline. Therefore, they were "winners" frominflation. B.   Their mortgage payment remained thesame each month. Inflation had no impact on them. C.   Inflation reduced the value of theirmoney, so the mortgage payment took a bigger portion of theirincome. They were "losers" from inflation.

Explanation / Answer

A.   Inflation caused the value of their mortgage payments todecline. Therefore, they were "winners" from inflation. Inflation Rate > Mortgage Rate A.   Inflation caused the value of their mortgage payments todecline. Therefore, they were "winners" from inflation.

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