Suppose you take out a loan at your local bank and the nominal interest rate is 12%.

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Suppose you take out a loan at your local bank and the nominal interest rate is 12%. The bank expects the inflation rate to be 4% during the life of your loan.

a) What is the bank’s ex ante real interest rate?

b) What is the bank’s ex post real interest rate if the inflation rate happens to be larger than 4% during the life of this loan?

c) As a borrower, would you benefit from a higher or lower actual inflation rate?

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Macroeconomics Policy And Practice

ISBN: 978-0133424317

2nd Edition

Authors: Frederic Mishkin

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Question Posted: Feb 17, 2024 11:01 PM

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Suppose you take out a loan at your local bank and the nominal interest rate is 12%.

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Answers a Ex ante real interest rate The exante real interest rate is the nominal interest rate minu...View the full answer

Macroeconomics Policy And Practice

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