The nominal interest rate is 6%. Expected inflation is 2%. Actual inflation is 1%. Calculate the ex-ante and ex-post real interest rates. Who benefits from lower actual inflation

1. Ex-ante real interest rate is:

= 4%

2. Ex-post real interest rate is:

= 5%

3. The LENDER benefits from lower actual inflation.  By this, the Ex-ante real interest rate is lower than the Ex-post real interest rate at which the borrower will repay the loan.

Explanation:

a) Data and Calculations:

Nominal interest = 6%

Expected inflation = 2%

Actual inflation = 1%

Ex-ante real interest rate = 4% (6% - 2%)

Ex-post real interest rate = 5% (6% - 1%)

b) The implication is that inflation is lower than expected, and this benefits the lender at the expense of the borrower.  The opposite is applicable when the inflation is higher than expected, and the result benefits the borrower at the expense of the lender.

d, conspicuous consumption is when you try to increase your wealth or social status (and in the case he's trying to create the perception of wealth considering he can't really afford it)

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough