Marco expects the inflation rate to be 6 percent, and he is willing to pay a real interest rate of 3 percent. jin expects the inflation rate to be 6 percent, and she is willing to lend money if she receives a real interest rate of 3 percent. if the actual inflation rate is 5 percent and the loan contract specifies a nominal interest rate of 9 percent, then:

We have Nominal Interest Rate = Real Interest Rate + Inflation Rate

Marco: Inflation Rate = 6%; Real Interest = 3%; Nominal Interest Rate = 9%

Jin would lend money only if Inflation Rate = 6%; Real Interest Rate = 3%;

Nominal Interest Rate = 9%

Given Actual Inflation Rate = 5%; Nominal Rate = 9%;

Real Rate = 9% - 5% = 4%.

Since the real interest rate became low for Marco, it will be a advantage for him.