Question: The accompanying table provides the inflation rate in the year 2000 and the average inflation rate over the period 2001-2013 for seven different countries.
a. Given the expected relationship between average inflation and menu costs, rank the countries in descending order of menu costs using average inflation over the period 2001-2013.
b. Rank the countries in order of inflation rates that most favored borrowers with ten-year loans that were taken out in 2000. Assume that the loans were agreed upon with the expectation that the inflation rate for 2001 to 2013 would be the same as the inflation rate in 2000.
c. Did borrowers who took out ten-year loans in Japan gain or lose overall versus lenders? Explain.