The banks lost money in the 1970s because of the higher inflation. Why couldn't they just raise the interest rate on loans to compensate?
a. Because potential borrowers will not borrow at higher interest rates, even during times of higher inflation.
b. Because the government would not let them raise interest rates.
c. Trick question - banks did not lose money in the 1970s.
d. Because many loans were long-term mortgage loans made in the 1960s and they had fixed interest rates.