Answered: Assume that John has a car loan with a…

Assume that John has a car loan with a nominal interest rate of 4%. If the actual inflation rate is 3%, then the real rate is O 3% 4% O 7% O 1%

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 7E

See similar textbooks

Related questions

Q: Assuming the nominal interest rate is positive, ceteris paribus, which of the following statements…

A: The interest rate in economics is the amount of payment that a lender charges on a borrower in order…

Q: Because of general price inflation in our economy, the purchasing power of the dollar shrinks with…

A: Prices for goods and services are always subject to change in a market economy. Some prices increase…

Q: If the inflation rate is 3% per year, how many years will it take for the cost of an item to double,…

A: Given:Inflation Rate=3% per year

Q: According to the table, in which year did buyers of six-month Treasury bills receive the highest…

A: Real Rate of Interest = Nominal Rate of Interest - Inflation Rate A real rate of interest is…

Q: Someone with dollar bills to lend will never agree to make a loan with a nominal interest rate of…

A: Nominal interest rate refers to the rate of interest before considering the inflation. A nominal…

Q: In 2013, the price for a market basket of consumer goods is $1,600. In the base year, the cost of…

A: Price index shows how the average price of a market basket of goods changes over time.…

Q: Suppose nominal GDP for an economy rose from $120 billion in 2016 to $150 billion in 2017 and that…

A: Real GDP is the inflation adjusted value so here we calculate the nominal GDP and than reduce the…

Q: Suppose the consumer price index (CPI) accurately measures inflation, and: In 1983 the CPI in the…

A: The inflation rate is the percentage change in difference between the consumer price index of the…

Q: 2. The inflation-unemployment relationship The following graph shows the combinations of…

A: Two economic indicators of unfavourable economic conditions are unemployment and inflation. These…

Q: Assume the CPI increases from 102 to 113, The rate of inflation for that year is Multiple Choice O O…

A: CPI is the consumer price index. The price index is calculated as the cost of market basket in…

Q: The price index of an economy was 1.25 in year 0. The general inflation rate between years 0 and 1…

A: The average change in prices between periods or the average difference in prices between places is…

Q: INTEREST RATE, r (Percent) O Short-term interest rates O Long-term interest rates Which tend to be…

A: "As per the policy, we can provide a solution to the first question only. Kindly raise the question…

Q: If the CPI increases from 135 in 2006 to 154 in 2007, the rate of inflation between 2006 and 2007…

A: CPI can be used to calculate the inflation between two period of time given the formula of…

Q: In 1950, Congress raised the federal minimum wage to seventy-five cents ($0.75) per hour. The CPI in…

A: Consumer price index is one of the measures to calculate inflation.

Q: You borrow $50,000 today at a rate of 5%. Today, inflation instantly rises to 7% and stays that way…

A: The inflation and nominal interest rate are considered while lending out the money. The Change in…

Q: If the CPI increases from 135 in 2006 to 154 in 2007, the rate of inflation between 2006 and 2007…

A: Consumer price index measures the change in cost of market basket of goods and services a typical…

Q: D Question 26 A corporation issues a bond with a par value of $4,800 in one year. Assume that the…

A: The Par value of a bond is $4800. Bond sold at $4500. The bond matures in one year.

Q: The consumer price index was 100 in 1994 and 103.3 in 1995. Therefore, the rate of inflation in 1995…

A: In the economic realm, the Consumer Price Index (CPI) serves as a vital indicator, reflecting…

Q: The inflation rate in a country is 6% per year. What real rate of return will an investor make on a…

A: Real Rate of return is the proportionate or the profit percentage earned on investment after making…

Q: In 2018, nominal gross domestic product (GDP) in the United States grew 5.2% However, inflation was…

A: Nominal GDP is the market value of final goods and services produced during a given period of time…

Q: LAST WORD Assume that you borrow $5,000, and you pay back the $5,000 plus $250 in interest at the…

A: Nominal interest rate is such interest rate which is derived before taking inflation into…

Q: You observe that the inflation rate in the United States is 3.6 percent per year and that T- bills…

A: Inflation refers to an inexplicable hike in goods and services price level during a given period of…

Q: In 2004 the price of one kilogram of chicken in Canada was $5.44 and in 2020 it was $7.41. If the…

A: Consumer Price Index(CPI), implies the prices(P) of a representative basket of goods procured by…

Q: None

A: The problem requires the determination of the future value of the land.Future value (FV) is the…

Q: If the inflation rate is 3 percent and the nominal interest rate is 8 percent, how much is the…

A: The nominal interest rate refers to the rate of loan or investment that does not take into account…

Q: You are given the following information about the economy: the nominal interest rate = 8 percent;…

Question

Assume that John has a car loan with a nominal interest rate of 4%. If the actual inflation rate is 3%,
then the real rate is
3%
4%
O 7%
O 1%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of 20,000. However, if the inflation rate is 6 per year, how much buying power will that 20,000 have when measured in todays dollars? Hint: Start by calculating the rise in the price level over the 16 years.
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3, what would likely happen to a homeowner with an adjustable-rate mortgage?
Why do you mink the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries?
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate man using the GDP deflate:
Construct the price index for a fruit basket in each year using 2003 as the base year.
How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
The prime interest rate is the rate that banks charge their best customers. Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years would it have been best to be a lender? Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years given would it have been best to be a borrower?
With in 1 or 2 percentage points, what has the U.S. inflation rate been during the last 20 years? Draw a graph to show the data.
Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?