Question: How will an increase in the inflation rate affect (a) the money rate of interest and (b) the real rate of interest? Explain. Does inflation

How will an increase in the inflation rate affect

(a) the money rate of interest and

(b) the real rate of interest? Explain. Does inflation transfer wealth from lenders to borrowers? Why or why not?

*12. If a bond pays $1,000 per year in perpetuity (each year in the future), what will the market price of the bond be when the long-term interest rate is 10 percent? What would it be if the interest rate were 5 percent?

*13. How are bond prices related to interest rates? Why are they related?

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