Question

What would your real rate of interest be if you lent $10,000 at 7% when the inflation rate is 8%? Would it make economic sense to lend the money?

A. 15\%/Yes

B. 700% / YES

C. 8\%/NO

D. 1\%/NO

E. -1%/NO

Answer 1

Answer: E. . -1%/NO

Step-by-step explanation:

The following can be deduced from the question:

Nominal interest rate = 7%

Inflation rate = 8%

Real interest rate = Nominal interest rate − Inflation rate.

= 7% - 8%

= -1%

Since the nominal interest rate is lower than the inflation rate, the real interest rate will be negative and this simply means that it doesn't make any economic sense to lend the money.