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During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1. 5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation a. Transferred wealth from you to the borrower and caused your after-tax real interest rate to be 0. 5 percentage points lower than what you had expected. B. Transferred wealth from the borrower to you and caused your after-tax real interest rate to be 0. 5 percentage points higher than what you had expected. C. Transferred wealth from you to the borrower and caused your after-tax real interest rate to be more than 0. 5 percentage points lower than what you had expected. D. Transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0. 5 percentage points higher than what you had expected

Answer :

Abiolataiwo2015go

If during the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1. 5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation is: A. transferred wealth from you to the borrower and caused your real interest rate to be 0.5 percentage points lower than what you had expected.

How to find the  real interest rate

Using this formula to determine the real interest rate

Real interest rate = Actual inflation  - Expected inflation

Where:

Actual inflation  = 1.5%

Expected inflation = 1%

Let plug in the formula

Real interest rate = 1.5% - 1%

Real interest rate = 0.5%

Therefore the correct option is A.

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