76. Ionnis puts money in the bank and earns a 7 percent nominal interest rate. What happens if the inflation rate is 3 percent? (A) Ionnis will have 7 percent more money, which will purchase 10 percent more goods. (B) Ionnis will have 3 percent more money, which will purchase 5 percent more goods. (C) Ionnis will have 7 percent more money, which will purchase 4 percent more goods. (D) Ionnis will have 3 percent more money, which will purchase 10 percent more goods.

76. Ionnis puts money in the bank and earns a 7 percent nominal interest rate. What happens if the inflation rate is 3 percent? (A) Ionnis will have 7 percent more money, which will purchase 10 percent more goods. (B) Ionnis will have 3 percent more money, which will purchase 5 percent more goods. (C) Ionnis will have 7 percent more money, which will purchase 4 percent more goods. (D) Ionnis will have 3 percent more money, which will purchase 10 percent more goods.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. Interest, inflation, and purchasing power Suppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $3,000 into a savings account that pays an annual nominal interest rate of 15%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a reusable tote bags has a price of $15.00. Initially, Devon's $3,000 deposit has a purchasing power of 9 reusable tote bagses. For each of the annual inflation rates given in the following table, first determine the new price of a reusable tote bags, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Devon's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest reusable tote bags. For example, if you find that the deposit will cover 20.7 reusable…
4. If the nominal interest rate is fixed over the life of a loan, the consequences of inflation being higher than expected are that A. the real interest rate will be higher than expected, and the lender will benefit. B. the real interest rate will be lower than expected, and the lender will benefit. C. the real interest rate will be lower than expected, and the borrower will benefit. D. the real interest rate will be higher than expected, and the borrower will benefit. E. the real interest rate will remain unchanged over the life of the loan, and the lender will benefit at the expense of the borrower. 5. Under what circumstance would the nominal interest rate be positíve but the real interest rate be negative? A. Expected inflation is negative. B. Expected inflation is zero. C. Expected inflation is exactly equal to the nominal interest rate. D. Expected inflation is greater than the nominal interest rate.
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1. fast as possible p[lease
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