Question

Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2 percent. At the end of the six-month period, prices have risen by 4 percent. a. Purchasing power has been redistributed to Rachel. b. No purchasing power has been redistributed. c. Purchasing power has been redistributed to Phoebe. d. Both Rachel and Phoebe received extra purchasing power.

Answer 1

Purchasing power has been redistributed to Phoebe as she borrowed the money at 2% but the prices increased at 4% which means the real interest rate that she paid was (2-4)= -2%

Step-by-step explanation: