The accompanying table provides the inflation rate in the year 2005 and the average inflation rate over the period 2006–2015 for seven different countries.

a. Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using average inflation over the period 2006–2015.

b. Rank the countries in order of inflation rates that most favored borrowers with ten-year loans that were taken out in 2005. Assume that the loans were agreed upon with the expectation that the inflation rate for 2006 to 2015 would be the same as the inflation rate in 2005.

c. Did borrowers who took out ten-year loans in Japan gain or lose overall versus lenders? Explain.

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Country Inflation rate in 2005 Average inflation rate in 2006-2015 Brazil China 6.87% 5.70% 1.82 2.89