4. Inflation and interest ratesThe following table gives the average nominal interest rates on six-month Treasury bills spanning the years 2004 and 2008, which determined thenominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 2004 to2008. (All rates rounded to the nearest 0.1 percent.)Year2004200520062007INTEREST RATE (Percent)20085.066Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.On the following graph, use the orange points (square symbol) to plot the nominal Interest rates for the years 2004 to 2008. Next, use the greenpoints (triangle symbol) toplot the real interest rates for those years.2.01.0oNominal Interest Rate Inflation Rate(Percent)1.6-1.02003O 20043.44.84.4O 20051.62006O 20072008(Percent)2.73.43.22004 20052.93.82008YEAR2007 2008According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?2009Nominal Interest RateReal Interest Rate

4. Inflation and interest rates The following table gives the average nominal Interest rates on six-month Treasury bills spanning the years 2004 and 2008, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 2004 to 2008. (All rates rounded to the nearest 0.1 percent.) Year 2004 2005 2006 2007 2008 INTEREST RATE (Percent) 9 20 Source: "FRED Economic Data" Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://red stlouised.org 9 Nominal Interest Rate (Percent) 1.6 On the following graph, use the orange points (square symbol) toplot the nominal interest rates for the years 2004 to 2008. Next, use the green points (triangle symbol) to plat the real interest rates for those years. 9 OOOO 2004 4.8 2005 1.6 2006 O 2007 O 2008 Inflation Rate (Percent) 2.7 3.4 3.2 2.9 3.8 YEAR According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? -O- Nominal Interest Rate Real Interest Rate

4. Inflation and interest rates The following table gives the average nominal Interest rates on six-month Treasury bills spanning the years 2004 and 2008, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 2004 to 2008. (All rates rounded to the nearest 0.1 percent.) Year 2004 2005 2006 2007 2008 INTEREST RATE (Percent) 9 20 Source: "FRED Economic Data" Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://red stlouised.org 9 Nominal Interest Rate (Percent) 1.6 On the following graph, use the orange points (square symbol) toplot the nominal interest rates for the years 2004 to 2008. Next, use the green points (triangle symbol) to plat the real interest rates for those years. 9 OOOO 2004 4.8 2005 1.6 2006 O 2007 O 2008 Inflation Rate (Percent) 2.7 3.4 3.2 2.9 3.8 YEAR According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? -O- Nominal Interest Rate Real Interest Rate

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose you'll have an annual nominal income of $20,000 for each of the next three years, and the inflation rate is 5 percent per year. Hint: Present value = Future value = (1 + Growth in prices)* = Real value of next year's income = Next year's income ÷ (1+ Growth in prices) Instructions: Round your responses to the nearest whole dollar. a. Find the real value of your $20,000 salary for each of the next three years. Year 1: $ Year 2: $ Year 3: $ b. If you have a COLA in your contract, what is the real value of your salary for each year? Year 1: $ 19047 Year 2: $ 18144 Year 3: $ 17276
Now you see what the BLS economist do, except with a more complex basket of goods. Now try to construct an index and determine the inflation rate on your own. The table shows the prices of fruit purchased by the typical college student from 2001 to 2004. What is the amount spent each year on the “basket” of fruit with the quantities shown in column 2? (5 points) Items Qty. 2001 2002 2003 2004 Price Amount Spent Price Amount Spent Price Amount Spent Price Amount Spent Apples 10 $0.50 $0.75 $0.85 $0.88 Bananas 12 $0.20 $0.25 $0.25 $0.29 Grapes 2 $0.65 $0.70 $0.90 $0.95 Raspberries 1 $2.00 1.9 2.05 2.13 $2.13 Total Construct the price index for a “fruit basket” in each year using 2003 as the base year. (5 points) Compute the inflation rate…
8. Real and nominal interest rates: Suppose the real return on investing in a machine is 5% and the inflation rate is 4%. 1. According to the Fisher equation, what should the nominal interest rate be? 2. Suppose bank A charges a nominal interest rate on loans equal to 8%. What happens? 3. Suppose bank B advertises its nominal rate on savings accounts as 12%. What happens?
1. Calculating inflation using a simple price index Consider a fictional price index, the College Student Price Index (CSPI), based on a typical college student's annual purchases. Suppose the following table shows information on the market basket for the CSPI and the prices of each of the goods in 2019, 2020, and 2021. The cost of each item in the basket and the total cost of the basket are shown for 2019. Perform these same calculations for 2020 and 2021, and enter the results in the following table. Notebooks Calculators Large coffees Energy drinks Textbooks Total cost Price index Price Cost Price Quantity in Basket (Dollars) (Dollars) (Dollars) 10 15 50 7 1 100 100 150 1 150 50 2 100 10 100 1,000 5 5 5 5 Suppose the base year for this price index is 2019. Between 2019 and 2020, the CSPI increased by 2019 1,400 100 110 1 3 120 5 5 2020 Cost (Dollars) In the last row of the table, calculate and enter the value of the CSPI for the remaining years. Price (Dollars) 11 140 1 4 150 5 5 %.…
2. The inflation-unemployment relationship The following graph shows the combinations of unemployment and inflation that existed in the United States for selected years between 1961 and 1969. Click on any blue point (circle symbol) on the graph to get its exact coordinates. You can also use the black point (cross symbol) to find the coordinates of other points along the curve. (Note: You will not be graded for any adjustments made to the graph.) INFLATION RATE (Percent) 1989 5.0 4.5 1988 4.0 3.5 1967 3:0 2.5 2.0 1965 1964 1.5 1983 1961 1.0 0.5 0 3.0 3.5 40 45 5.0 5.5 6.0 8.5 7.0 UNEMPLOYMENT RATE (Percent) What happened to the inflation rate between 1965 and 1969? The inflation rate decreased from 1.9% to 1.5%. The inflation rate increased by 3 percentage points. The inflation rate decreased by 2 percentage points. O The inflation rate increased from 2.9% to 4.3%. ? If the unemployment rate had been 4.0% during the 1960s, the inflation rate would most likely have been:
Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. Instructions: in part a, enter your answer as a whole number. In part b, round your answer to 1 decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers a. What is the real interest rate? percent b. What is the real interest rate if the inflation premium is 3 percent while the nominal interest rate is 0.5 percent? percent
4. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1997 and 2001, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1997 to 2001. (All rates rounded to the nearest 0.1 percent.) Year 1997 1998 1999 2000 2001 Nominal Interest Rate (Percent) 5.2 4.8 4.8 5.9 3.4 Inflation Rate (Percent) 2.3 1.5 2.2 3.4 2.8 Source: "FRED Economic Data Federal Reserve Bank of St. Louis, last modified September 23, 2015, accessed September 24, 2019, he//fred.stiouisfed.org.
The table below shows the annual change in the average nominal wage and inflation rate since 2008. a. Compute the percentage change in real income for each year shown in the table. Instructions: In part a, round your answers to two decimal places. In parts b and c, enter your answers as a whole number. If entering a negative number, include a minus sign. Percentage Changes in Nominal Income and Prices Year 2008 2009 2010 2011 2012 2013 Annual Inflation Rate (percent) 3.78% -0.39 1.6 3.09 2.02 1.42 Annual Nominal Wage Growth (percent) 0.31% -1.1 -0.69 1.27 2.46 2.07 Annual Real Wage Growth (percent) b. Of the years listed above, the paycheck of the average worker declined in c. Of the years listed above, the purchasing power of the average worker declined in of the six years. d. The average real income of households can increase whether the nominal wage increases or decreases of the six years.
The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 10 3 1 The inflation rate between Year 1 and Year 2 is The inflation rate between Year 2 and Year 3 is Price in the Base Year $3.50 $10.00 $500.00 Price in Year 2 $4.38 $9.00 $550.00 Price in Year 3 $4.73 $10.50 $600.00 %. (Round both answers to one decimal place.) %.
3. Inflation and the nominal interest rate When the actual and expected (or anticipated) inflation rates are both zero, the nominal interest rate must equal the real interest rate. How might inflation affect the nominal interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in millions of dollars). The following graph input tool shows the market for loanable funds. Use the graph input tool to help you answer the questions that follow. You can shift the supply and demand curves by changing the values of the supply and demand shifters on the right. You will not be graded on any changes you make to the graph input tool. INTEREST RATE (Percent) 0 0 100 200 400 300 LOANABLE FUNDS (Millions of dollars) 500 Graph Input Tool Interest Rate (Percent) Quantity demanded. (Millions of dollars) Demand Shifter Expected Inflation (percent) When the expected inflation rate is zero, the nominal interest rate is rate of and a real interest…
Refer to the hypothetical data in the table to answer the three questions. What was the real interest rate in 2017? Year Nominal interest rate Real interest rate Inflation rate 2017 3% — 5% 2018 5% 5% — 2019 — 3% 1% % What was the inflation rate in 2018? % What was the nominal interest rate in 2019? %
4. Inflation and interest rates The following table shows the average nominal interest rates on six-month Treasury bills between 1997 and 2001, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1997 to 2001. (All rates are rounded to the nearest tenth of a percent.) Year 1997 1998 1999 2000 2001 Nominal Interest Rate (Percent) 5.2 4.8 4.8 5.9 3.4 6.0 Inflation Rate (Percent) 2.3 1.5 2.2 3.4 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. 5.0 2.8 On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1997 to 2001. Next, use the green points (triangle symbol) to plot the real interest rates for those years. Nominal Interest Rate ?