Suppose you were borrowing money to buy a car.
a. Which of these situations would you prefer: The interest rate on your car loan is 20 percent and the inflation rate is 19 percent, or the interest rate on your car loan is 5 percent and the inflation rate is 2 percent? Briefly explain.
b. Now suppose you are JPMorgan Chase, and you are making car loans. Which situation in part (a) would you now prefer? Briefly explain.