A community for students. Sign up today!
Here's the question you clicked on:
 0 viewing
 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%?
 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

Nikhil619
 one year ago
Best ResponseYou've already chosen the best response.1Umm..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?

GoldRush18
 one year ago
Best ResponseYou've already chosen the best response.0yes i do thank you very much
Ask your own question
Ask a QuestionFind 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
 Engagement 19 Mad Hatter
 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.