Suppose that a borrower and a lender agree on the nominal interest rateto be paid on a loan. Then inflation turns out to be higher than they bothexpected.a. Is the real Interest rate on this loan higher or lower than expected?b. Does the lender gain or lose from this unexpectedly high inflation?Does the borrower gain or lose?c. Inflation during the 1970s was much higher than most people hadexpected when the decade began. How did this affect homeowners whoobtained fixed-rate mortgages during the 1960s? How did it affect thebanks that lent the money?To find additional study resources, visit cengagebrain.com, and searchfor "Mankiw."

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