An unexpected increase in inflation should:
A)increase the demand for loanable funds
B)decrease the interest rate on loans
C)increase the interest rate on loans
D)none of the above

Question

Quizplus · Accepted Answer

An unexpected increase in inflation can lead to a rise in interest rates as lenders demand higher interest rates to compensate for their reduced purchasing power due to inflation. This would increase the cost of borrowing and decrease overall demand for loanable funds. Therefore, choice C is the correct answer.

An Unexpected Increase in Inflation Should