Assume........?

Assume you borrow $1,000 on credit cards at an annual interest rate of 10 percent. If the inflation rate is 12 percent during the year and the debt has to be paid back in 12 months, then

1. income will be redistributed from you to the bank

2. the real return for the bank will be greater than initially expected

3.you will repay the bank with fewer dollars than you borrowed.

4.the dollars repaid will have less purchasing power than those borrowed

5. the bank will obtain the same return on the loan as initially expected.

Assume........?mortgage rate

4 is correct.

Basically, you borrow $1,000 and with interest (hope it isn%26#039;t compounded daily) you would pay back $1,100 (1,000 * 1.1).

If the inflation is 12%, then you would basically need $1,200 to buy the same amount of goods and services you previously bought for $1,000.

1 seems like it would mean paying the bank back the funds?

2 is completely the opposite of inflation.

3 is wrong since you are still paying back the amount agreed to, however, its buying power has diminished.

5 isn%26#039;t true either, as they are receiving the same money back, but with a little less buying power. (Then again, banks aren%26#039;t known for going out and buying goods, just investing.)