Scenario: Potential lenders will lend any amount of money if the real interest rate is 2% (and will lend nothing otherwise), and inflation is expected to be 4%. A one-year loan is made. At the end of the year, actual inflation is 6%, rather than the expected rate of 4%. This surprise implies: A one-year loan is made. At the end of the year, actual inflation is 6%, rather than the expected rate of 4%. This surprise implies:
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Scenario: Potential lenders will lend any amount of money if the real interest rate is 2% (and will...
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