7. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills sparining 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 Nominal Interest Rate (Percent) 0.1 3.0 0.2 0.5 20 1.1 2.1 Inflation Rate (Percent) 1.6 0.1 1.3 2.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. 2.4 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. Nominal Interest Rate

ENGR.ECONOMIC ANALYSIS
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Please answer all parts Bottom choices are: 2014 2015 2016 2017 2018
### 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 | Nominal Interest Rate (Percent) | Inflation Rate (Percent) |
|------|---------------------------------|--------------------------|
| 2014 | 0.1                             | 1.6                      |
| 2015 | 0.2                             | 0.1                      |
| 2016 | 0.5                             | 1.3                      |
| 2017 | 1.1                             | 2.1                      |
| 2018 | 2.1                             | 2.4                      |

*Source: "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 2014 to 2018. Next, use the green points (triangle symbol) to plot the real interest rates for those years.

- The graph has a y-axis representing percentages from 0.0 to 3.0 in increments of 1.0.
- The x-axis represents the years 2014 to 2018.
- There is a legend indicating the orange squares for nominal interest rates.

The graph helps visualize the changes in nominal and real interest rates over the given years. Nominal interest rates are observed through orange square markers, and you'll plot the real interest rates (calculated by subtracting the inflation rate from the nominal rate) using green triangle markers. This comparison will highlight the effect of inflation on the actual value of interest rates over time.
Transcribed Image Text:### 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 | Nominal Interest Rate (Percent) | Inflation Rate (Percent) | |------|---------------------------------|--------------------------| | 2014 | 0.1 | 1.6 | | 2015 | 0.2 | 0.1 | | 2016 | 0.5 | 1.3 | | 2017 | 1.1 | 2.1 | | 2018 | 2.1 | 2.4 | *Source: "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 2014 to 2018. Next, use the green points (triangle symbol) to plot the real interest rates for those years. - The graph has a y-axis representing percentages from 0.0 to 3.0 in increments of 1.0. - The x-axis represents the years 2014 to 2018. - There is a legend indicating the orange squares for nominal interest rates. The graph helps visualize the changes in nominal and real interest rates over the given years. Nominal interest rates are observed through orange square markers, and you'll plot the real interest rates (calculated by subtracting the inflation rate from the nominal rate) using green triangle markers. This comparison will highlight the effect of inflation on the actual value of interest rates over time.
### Understanding Nominal and Real Interest Rates

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.

#### Graph Explanation

The graph is a comparative plot of nominal and real interest rates over a span from 2014 to 2018. The X-axis represents the year (ranging from 2013 to 2019), and the Y-axis represents the interest rate (percent), ranging from -2.0 to 3.0 percent. 

#### Key Points:

- **Orange Squares**: These indicate the nominal interest rates.
- **Green Triangles**: These indicate the real interest rates.

The graph includes two types of markers:
- **Nominal Interest Rate**: Orange squares located around 2.0 percent.
- **Real Interest Rate**: Green triangles placed marginally below the orange squares.

#### Analysis Question:

Based on the provided table, answer this:

In which year did buyers of six-month Treasury bills receive the highest real return on their investment?

- [ ] 2014
- [ ] 2015

Make sure to analyze the real interest rate data accurately before making your selection.

---

This exercise is crucial for understanding the distinction between nominal and real interest rates and their implications on investments over time.
Transcribed Image Text:### Understanding Nominal and Real Interest Rates 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. #### Graph Explanation The graph is a comparative plot of nominal and real interest rates over a span from 2014 to 2018. The X-axis represents the year (ranging from 2013 to 2019), and the Y-axis represents the interest rate (percent), ranging from -2.0 to 3.0 percent. #### Key Points: - **Orange Squares**: These indicate the nominal interest rates. - **Green Triangles**: These indicate the real interest rates. The graph includes two types of markers: - **Nominal Interest Rate**: Orange squares located around 2.0 percent. - **Real Interest Rate**: Green triangles placed marginally below the orange squares. #### Analysis Question: Based on the provided table, answer this: In which year did buyers of six-month Treasury bills receive the highest real return on their investment? - [ ] 2014 - [ ] 2015 Make sure to analyze the real interest rate data accurately before making your selection. --- This exercise is crucial for understanding the distinction between nominal and real interest rates and their implications on investments over time.
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