1. Suppose that a borrower is offered a choice between a fixed rate mortgage and a variable rate mortgage. If the borrower expects the inflation rate to increase, which of the rates would be more attractive to the borrower?
2. When examining historical data, we observe that countries with high inflation rates tend to have high nominal interest rates. Does this imply that real interest rates are also high in countries with very high inflation rates?
3. Suppose that Alexandra decides to withdraw $300 out of her checking account at Citibank. What would the impact of this transaction on Citibank’s and the Fed’s balance sheets be?