If future price changes were perfectly anticipated by both borrowers and lenders,what would happen to the real interest rate in the future if the price level changed?
A)it would increase
B)it would decrease
C)it would decrease by the amount of the price increase
D)it would increase by the amount of the price increase
E)it would not change

Question

Quizplus · Accepted Answer

If future price changes were perfectly anticipated by both borrowers and lenders, the real interest rate would already incorporate the expected change in the price level. Therefore, any actual change in the price level would not affect the real interest rate, and it would remain the same.

If Future Price Changes Were Perfectly Anticipated by Both Borrowers