3. Answer the following questions with the help of graphs: a. If interest rates are expected to continue to decrease in the foreseeable future, what should happen to interest rates today? b. If expected inflation decreases, how would interest rates be affected?

3. Answer the following questions with the help of graphs: a. If interest rates are expected to continue to decrease in the foreseeable future, what should happen to interest rates today? b. If expected inflation decreases, how would interest rates be affected?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

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13. How does inflation affect people's standards of living and savings? Inflation is an (increase, decrease ) in the overall level of prices and has a ( positive , negative ) effect on people's standards of living and savings. People are forced to reduce their expenditures when the price of goods and services increases while nominal wages (also known as salaries) do not change. Savings are also affected by inflation because the (2 saved dollars is reduced. For example, a family with saving of $60,000 will be able to purchase (. more, fewer) goods and services with those dollars if the economy is experiencing inflation. ) of
2. How does a very high rate of inflation affect individual spending and saving? Explain your answer.
5. How might a rapid rise in inflation harm you? How might a rapid rise in inflation help you? In answering this question consider your role as both a consumer, worker, and borrower. Consider the likely effect on your real wages, and any interest you recelve as a saver. Would it be advantageous to borrow money if you expected inflation to rise? Would you want a fuxed rate loan or one with an adjustable interest rate?
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