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Suppose Liz loans Kevin $200 for one year, using a fixed-rate loan. At the time the loan is made, expected inflation is 6 percent, and

  1. Suppose Liz loans Kevin $200 for one year, using a fixed-rate loan. At the time the loan is made, expected inflation is 6 percent, and Liz and Kevin agree that the ex-ante real interest rate should be 4 percent.Over the next year, the actual inflation rate turns out to be 2 percent.How much does Kevin repay to Liz?

$206

$212

$210

$220

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