What is the actual real interest rate

Reference no: EM131988268

Problem

Suppose the nominal interest rate is 5%, the expected inflation rate is 5%, and the actual inflation rate turns out to be 4%.

a) What is the expected real interest rate?
b) What is the actual real interest rate?
c) Given these numbers, are borrowers better or worse off than expected? Briefly explain.

Reference no: EM131988268

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