Answer to Question #56217 in Macroeconomics for craig

Question

Suppose you borrow $10,000 from a bank at 5% interest rate for one year and the inflation rate for that year is 10%.
Was this loan advantageous to you or to the bank?

Answer 1

Interest to be paid: $10,000 ∙ 0.05 = $500
Losses due to inflations: $10,000 ∙ 0.1 = $1000
As long as the inflation losses were greater than the interest paid, the loan was advantageous to me:
$1000 - $500= $500