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Question 3 2 pts Assume that currently the nominal interest rate is 6% and people expect the rate of price ination for the next year

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Question 3 2 pts Assume that currently the nominal interest rate is 6% and people expect the rate of price ination for the next year to be 4%. Additionally, the price level today is P = 100. A lender lends $100,000 for a year to a borrower. If instead, she spent the money today, she would be able to buy units of goods and services. This is the purchasing power of her money today. Next year, the borrower will pay back dollars to the lender. With the amount of money received from the borrower, the lender expects to be able to buy units of goods and services next year. This will be the expected purchasing power of her money next year. Therefore, the lender's real purchasing power is expected to increase by increase in the real purchasing power is called the ex-ante real interest rate. percent over the next year as a result of lending. This expected rate of If next year the price level actually increased by 5%, the ex-post real interest rate would equal i percent

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