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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Here are some recent data on the US consumer price index: Year CPI Year CPI Year CPI 2016 240.0 2011 224.9 2006 201.6 2015 237.0 2010 218.1 2005 195.3 2014 236.7 2009 214.5 2004 188.9 2013 233.0 2008 215.3 2003 184.0 2012 229.6 2007 207.3 2002 179.9 Compute the inflation rate of each year 2003-2016 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?
4. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 2014 and 2018, 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 2014 to 2018. (All rates rounded to the nearest 0.1 percent.) Year 2014 2015 2016 2017 2018 INTEREST RATE (Percent) Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stiouisfed.org. Nominal Interest Rate (Percent) 0.1 0.2 0.5 1.1 2.1 On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 2014 to 2018. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 2.0 Inflation Rate (Percent) 1.6 0.1 1.3 2.1 2.4 10 Nominal Interest Rate Real Interest Rate ?
The real interest rate is 1 the market rate of interest charged by banks. 2 the rate of interest that banks charge their best customers. 3 the nominal rate of interest minus the inflation rate that individuals expect. 4 the expected inflation rate minus the cost of borrowing.
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1. Calculating inflation using a simple price index.
Suppose the CPI is 120 in year 1 and 150 in year 2. If First National Bank charges a nominal interest rate of 30 percent in year 2, what is the bank's real interest rate? Explain.
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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
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:
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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.