When real rates of interest are positive, it is better to be a:
A) saver than a borrower, because the value of savings and debts are increasing.
B) borrower than a saver, because the value of savings and debts are increasing.
C) saver than a borrower, because the value of savings and debts are decreasing.
D) borrower than a saver, because the value of savings and debts are decreasing.

Question

Quizplus · Accepted Answer

When real rates of interest are positive, the value of money increases over time due to inflation being lower than the interest rate. Therefore, it is better to be a saver because the value of savings increases, while the value of debt decreases, making it harder for borrowers to pay back their loans.

When Real Rates of Interest Are Positive, It Is Better