Quantcast

A community for students. Sign up today!

Here's the question you clicked on:

55 members online
  • 0 replying
  • 0 viewing

GoldRush18

  • one year ago

Joe borrowed $300 from his friend Mike to buy a $300 bike. Joe agreed to pay Mike 5% interest rate to compensate him for not having use of his $300 for that year and to adjust for the 2% inflation in the past. That nominal interest rate would imply a 3% real interest rate on the loan. Suppose that over the year the inflation rate was 3%, rather than 2% rate Joe and Mike had expected. Who gains and who loses? How would your answer differ if the actual inflation rate over the year was 1%?

  • This Question is Closed
  1. Nikhil619
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    Umm..if the inflation rate was 3% rather than 2%..Joe would gain as he would technically have to pay lesser value of money.... If it was only 1% inflation...then Mike would gain as he would get extra 1 % of interest.. Understand?

  2. GoldRush18
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    yes i do thank you very much

  3. Not the answer you are looking for?
    Search for more explanations.

    • Attachments:

Ask your own question

Ask a Question
Find more explanations on OpenStudy

Your question is ready. Sign up for free to start getting answers.

spraguer (Moderator)
5 → View Detailed Profile

is replying to Can someone tell me what button the professor is hitting...

23

  • Teamwork 19 Teammate
  • Problem Solving 19 Hero
  • You have blocked this person.
  • ✔ You're a fan Checking fan status...

Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.

This is the testimonial you wrote.
You haven't written a testimonial for Owlfred.