Visit “What are the interest rates for federal student loans?” at https://studentaid.ed.gov/ sa/types/loans/interest-rates#rates and find the interest rate on Stafford Loans, the most common type of student loan. Suppose that you took out a loan at this rate. Note that this rate is constant for the life of the loan. Next, suppose that at your first job after graduation, there

Chapter 20, Critical Thinking #3

Visit “What are the interest rates for federal student loans?” at https://studentaid.ed.gov/ sa/types/loans/interest-rates#rates and find the interest rate on Stafford Loans, the most common type of student loan. Suppose that you took out a loan at this rate. Note that this rate is constant for the life of the loan. Next, suppose that at your first job after graduation, there are two possibilities: (i) the inflation rate is 2%, and your wages rise by 4% or (ii) the inflation rate is 3%, and your wages rise by 5%. (No, you certainly do not get a choice of inflation rates, but pretend that you can for the sake of exploring this important concept.) Briefly explain whether you would prefer the first or the second situation.

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Economics

7th edition

Authors: R. Glenn Hubbard, Anthony Patrick O Brien

ISBN: 978-0134738321

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