Question

In which of the following situations would you prefer to be the​ borrower? (A) The interest rate is 4 percent and the expected inflation rate is 1 percent. (B) The interest rate is 25 percent and the expected inflation rate is 50 percent. (C) The interest rate is 9 percent and the expected inflation rate is 7 percent. (D) The interest rate is 13 percent and the expected inflation rate is 15 percent.

Answer 1

Answer:

A. The interest rate is 4% and the expected inflation rate is 1%

Explanation:

The Fisher effect show us that we need the Real interest rate to evaluate the situations, and applying the  balance

"Real interest rate=Nominal interest rate-expected inflation rate"

Our situation with the best Real interest rate is A (3%)