You take out student loans to help pay for your degree at a 5% annual interest rate. Assume the bank expected inflation to average 3% per year. What real interest rate did they expect to earn from your loan? What happens if inflation is actually 5% per year? Who is better off if inflation is higher than expected? What if it is lower than expected? Why

Survey Of Economics
10th Edition
ISBN:9781337111522
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter13: Inflation
Section: Chapter Questions
Problem 12SQ
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  1. You take out student loans to help pay for your degree at a 5% annual interest rate. Assume the bank expected inflation to average 3% per year. What real interest rate did they expect to earn from your loan? What happens if inflation is actually 5% per year? Who is better off if inflation is higher than expected? What if it is lower than expected? Why?

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