Question

When the actual inflation rate turns out to be greater than the expected inflation rate, who gains—the borrower or the lender—and who loses? Explain why.

Answer #1

Suppose that a borrower and a lender agree on the nominal
interest rate to be paid on a loan. Then inflation turns out to be
lower than they both expected.
(1) True or False: The real interest rate on
this loan is lower than expected.
The lender (2) gains/loses from this unexpected
lower inflation, and the borrower
(3) gains/loses under these circumstances.
Inflation during the 1970s was much higher than most people had
expected when the decade began.
Homeowners who...

Workers and employers in economy expected 3% inflation rate for
2015 but actual inflation turns out to be 5%. Kylie, a casual
worker with no labour contract, has remained unaffected while
Susie, a fixed term employee, has become worse-off.
To explain if it is true, false, or uncertain.

5) Borrowers benefit and lenders lose when the
A) actual interest rate is less than the expected real interest
rate.
B) actual interest rate is greater than the expected real
interest rate.
C) actual interest rate is equal to the expected real interest
rate.
D) actual inflation rate is less than the expected inflation
rate.
is it (a) by chance

The Phillips curve shows that:
a- Inflation is usually higher than expected when actual
equilibrium GDP is greater than potential GDP
b- Changes in labor demand tend to be deflationary
c- As unemployment rises, the general price level is rising
d- Technological improvements might increase the level of
noncyclical unemployment

What costs are associated with imperfectly anticipated
inflation? Discuss them carefully. Who loses, and who gains, when
inflation is higher than we expect?

If the real interest rate was large during the last year, then
a. inflation is expected to exceed the nominal interest rate in the
future. b. inflation is expected to be less than the nominal
interest rate in the future. c. actual inflation was less than the
nominal interest rate. d. actual inflation was greater than the
nominal interest rate.

Who is harmed when inflation is less than anticipated? In what
ways are they harmed? Who is harmed when inflation is greater than
anticipated? In what ways are they harmed?

Given the nominal interest rate of 13% and the expected
inflation of 15%, then the value of the real interest rate is ___
?
2. With the real interest rate equal to 3% and the expected
inflation equal to 2%, then the value of the nominal interest rate
is___?
3. A lender prefers a (high or lower) real interest rate while a
borrower prefers a (higher or lower) real interest rate higher
lowreal interest rate.

can irr of a project be greater than inflation rate ?
why/why not?

In each of the following scenarios
explain who is better off (i.e. the borrower or lender) when a
borrower borrows $200 from a lender (assume the loan is always
made).
a. Inflation is 5% and interest
charged is 4%
b. Inflation is 3% and the interest
charged is 4%
c. Inflation is -2% and the interest
charged is 0%

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