Suppose that Shonda borrows $20,000 to purchase a car. The bank charges her a nominal interest rate of 9%. If the inflation rate decreases from 4% to 3%, which of the following is true? OA decrease in inflation decreases the real interest rate and hence decreases the real cost of borrowing. OA decrease in inflation increases the real interest rate and hence decreases the real cost of borrowing. The nominal interest rate does not change and hence the real cost of borrowing remains the same. OA decrease in inflation increases the real interest rate and hence increases the real cost of borrowing.

Suppose that Shonda borrows $20,000 to purchase a car. The bank charges her a nominal interest rate of 9%. If the inflation rate decreases from 4% to 3%, which of the following is true? OA decrease in inflation decreases the real interest rate and hence decreases the real cost of borrowing. OA decrease in inflation increases the real interest rate and hence decreases the real cost of borrowing. The nominal interest rate does not change and hence the real cost of borrowing remains the same. OA decrease in inflation increases the real interest rate and hence increases the real cost of borrowing.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: Money Growth And Intlation

Section: Chapter Questions

Problem 6PA

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