Bill wants to borrow 0 from John. John wants to make 6% real
return on his money, so they both agree on a 6% interest rate paid
next year. Neither anticipate the actual -2% inflation rate next
year. In this case:

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Question: Bill wants to borrow $100 from John. John wants to make 6% real return on his money, so they both…
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A. Bill will pay 6% in nominal interest rate.

B. Bill will pay 8% in real interest rate.

C. John is better off.

D. all of the above

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