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Suppose that you are buying your first home. Current interest rates on a 30-year fixed-rate mortgage are 5 percent, since lenders expect an inflation rate of 2 percent over the next 30 years, thus ensuring them a real return of 3 percent. If actual inflation over the next 30 years is 4 percent because of a continued rapid expansion of the money supply, would you be better off or worse off by taking out a 30-year fixed-rate mortgage?
