Answer to Question #337811 in Microeconomics for Hlelo

Question

Paul lends R10 000 to his friend Steven for one

year. They agree that Steven would pay the R10

000 back with 5% interest at the end of the year. If

the inflation rate is 6%, which of the following

would be true for the real value of the amount that

Steven pays back at the end of the year?

O a. It would be more than R10 000 but less than

R10 500

O b. It would be more than R10 500.

O c. It would be less than R10 000.

O d. It would be exactly R10 500.

Answer 1

c. It would be less than R10 000.