Business, 29.07.2020 04:01 Lovely7290

Suppose Sally borrows $1,000 from Harry for one year and agrees to pay a nominal interest rate of 8%. When she borrows the money, both she and Harry expect an inflation rate of 6%. 1. The expected real interest rate on the loan is%.
2. Suppose that when Sally pays back the loan after one year, the actual inflation rate turns out to be 4%. The actual real interest rate on the loan is%.
3A. If the inflation rate turned out to be higher than expected, then.
3B. But if inflation turned out to be lower than expected, then.

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Suppose Sally borrows $1,000 from Harry for one year and agrees to pay a nominal interest rate of 8%...

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