A is willing to lend $100 to B.The interest rate is 5%.The term of loan will be one year.Suppose both parties expect the general price level to raise by 10% over the period.
1)What is the interest rate that both parties would be willing to continue with the transaction?
What is the real interest rate?
2)Under what circumstances will A gain at the expense of B?
3)What are the real costs of inflation?