Author Question: If you were a borrower, which of the following unexpected changes in inflation would you prefer once ... (Read 407 times)

geoffrey · **on:** Jun 30, 2018

If you were a borrower, which of the following unexpected changes in inflation would you prefer once you have taken out a long term fixed rate loan?
a. An increase from 2 inflation to 6 inflation.
b. An increase from 7 inflation to 10 inflation.
c. A decrease from 14 inflation to 8 inflation.
d. A decrease from 6 inflation to 3.

Question 2

If inflation had long been 7 and was therefore expected to continue, then it unexpectedly increased to 4 inflation:
a. the real interest rate on loans issued just before the change occurred would decrease by three percentage points.
b. the real interest rate on loans issued just before the change occurred would increase by three percentage points.
c. the real interest rate on loans issued just before the change occurred would not change.
d. none of the above.