Question

If the nominal interest rate is 12% and expected inflation is 4%, the ex-ante real interest rate is 8%. if actual inflation turns out to be 8%, the ex-post real interest rate would be 4%. the borrower benefits from higher-than-expected inflation since they repay with less valuable dollars.

Answer 1

The ex-ante real interest rate is 8% and the ex-post real interest rate is 4%. Borrowers benefit from higher-than-expected inflation as they repay with less valuable dollars.

Step-by-step explanation:

The subject of this question is Business at the College level.

The ex-ante real interest rate is the real interest rate that is expected or anticipated before considering actual inflation. In this case, the nominal interest rate is 12% and the expected inflation is 4%, so the ex-ante real interest rate is 8%.

However, the ex-post real interest rate is the real interest rate that is realized or experienced after considering actual inflation. If the actual inflation turns out to be 8%, then the ex-post real interest rate would be 4%. This means that the borrower benefits from higher-than-expected inflation since they repay with less valuable dollars.