Question
Suppose the inflation rate is 3% when a 15-year mortgage loan is given at a fixed rate of 4.5%. Five years later the inflation rate
Suppose the inflation rate is 3% when a 15-year mortgage loan is given at a fixed rate of 4.5%. Five years later the inflation rate rises to 4%. What impact does this change have on the nominal interest rate and the real interest rate on the mortgage loan?
A. The nominal interest rate and the real interest rate both increase.
B. The nominal interest rate decreases and the real interest rate increases.
C. The nominal interest rate remains the same and the real rate interest decreases.
D. The nominal interest rate and the real interest rate both decrease.
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