# Consider two scenarios. In the first, the nominal interest rate is 6 percent and the expected rate of inflation is 4 percent. In the second, the nominal interest rate is 5 percent and the expected rate of inflation is 2

Consider two scenarios. In the first, the nominal interest rate is 6 percent and the expected rate of inflation is 4 percent. In the second, the nominal interest rate is 5 percent and the expected rate of inflation is 2 percent. In which situation would you rather be a lender? In which would you rather be a borrower?

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## In the first scenario the real interest rate is 2 percent the difference between the nominal inter…View the full answer

**Related Book For**

## Money Banking and Financial Markets

**ISBN:** 978-0078021749

4th edition

**Authors:** Stephen Cecchetti, Kermit Schoenholtz

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