Assumeinflation is expected to be 6% over the next year. What nominal interest rate would you require fromthe bank over the next year? How much money will you have at the end of one year? If you aresaving to buy a stereo that currently sells for $1,125, will you have enough to buy it?you just deposited $1,000 into a bank account. The current real interest rate is 3% and

A real interest rate is adjusted to remove the effects of inflation while a nominal interest rate…

Answered: Assume you just deposited $1,000 into a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Ek 3 UK’s inflation has hit a 40 year high (CPI is 9.1% in June 2022). Evaluate the use of interest rate changes as a means of controlling UK inflation.
If the nominal interest rate was 12% and the inflation rate was 10% in 1980, while the nominal interest rate was 7% and the inflation rate was 2% in 2001, then real rates were higher in 2001 real rates were higher in 1980 credit was more expensive in 1980 credit was cheaper in 2001 because the nominal rate was lower
A man deposited his first paycheck of $2000 into a long-term savings account at a bank at an interest rate of 12% in 1951 as a gift to his future grandchild. Assume a steady inflation rate of 8%. If his grandchild withdraws that money today in 2021, how much actual money did they withdraw? How much purchasing power would this withdrawal have in 1951?
Suppose you want to earn a real interest rate of 5%. For inflation rates of 0.0, 1.0, 2.0, …, 9.0, 10.0, 15.0, 20.0, and 50.0%, determine the combined rate of interest you must earn.
Cost of a medical treatment after one year is $100,000. The real discount rate is 5%. The economy has an inflation rate of 6% for next one year. Use the inflation adjusted discount rate to compute the present value of the $100,000.
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Assuming that the inflation rate from 2018 through 2020 is 6% per year: a) What would be the real value of a $55,000 income in each of the three years? b) What does the real income computed for 2019 mean?
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Suppose Dina is an avid reader and buys only comic books. Dina deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a comic book is priced at $10.00. Initially, the purchasing power of Dina's $3,000 deposit is comic books. For each of the annual inflation rates given in the following table, first determine the new price of a comic book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Dina'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 comic book. For example, if you find that the deposit will cover 20.7 comic books, you would round the purchasing power down to 20 comic books under the assumption that Dina will not buy…

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