1.12. The accompanying table provides the inflation rate in the year 2000 and the average inflation rate...
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1.12. The accompanying table provides the inflation rate in the year 2000 and the average inflation rate over the period 2000–2007 for eight different countries.
a. Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using average inflation over the period 2000–2007.
b. Rank the countries in order of inflation rates that most favored borrowers with seven-year loans that were taken out in 2000. Assume that the expected inflation rate was the inflation rate in 2000.
c. Did borrowers who took out seven-year loans in Japan gain or lose overall versus lenders? Explain.
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