Calculate the one-year real rate of interest faced by the U.S. government given that expected inflation is now 2.47%/year (Source: FRB-Cleveland) and the nominal one- year U.S. Treasury rate is 0.0685% (Source: Investing.com).
Q: If the rate of inflation is 2%, what are the before-tax real interest rate and your after-tax rate…
A: The Fischer equation defines the relationship between the real interest rate , nominal interest rate…
Q: The growth rate of real GDP is 6.4% The growth rate of nominal GDP is 7.8% The nominal interest rate…
A: According to the quantity theory of money, inflation rate can be calculated as follows:
Q: Suppose that Lisa lends Alex $1,000, which Alex must repay after one year with an interest payment…
A: The term ‘inflation’ implies constant upward rise in the average prices of services and commodities…
Q: Suppose Devon is a fashionista and buys only denim jackets. Devon deposits $4,000 into a savings…
A: The purchasing power of deposits increases after a year when interest rate is earned on the…
Q: You open a savings account with a 0.5% per year nominal interest rate, and the economy experiences…
A:
Q: Gavin receives a portion of his income from his holdings of interest-bearing U.S. government bonds.…
A: Nominal interest rate is the interest rate calculated without taking inflation into account. Real…
Q: According to the Fischer equation, if the nominal interest rate is 8% and inflation is running at 4%…
A: Nominal interest rate is the interest rate that is received or paid on a loan. Real interest rate…
Q: If the interest rate on a one-year loan is 5%5% and the expected inflation rate is −2%−2% for the…
A: Real interest rate= Nominal interest - Inflation rate Real interest rate is the actual interest an…
Q: Which lending agreement represents the highest real rate of return for a bank when it lends its…
A: Real rate of return is computed with the help of following formula:Real rate = (1+Nominal rate) /…
Q: Suppose Dalia is a sports fan and buys only football tickets. Dalia deposits $2,000 into a savings…
A: Dalia is a sports fan and buys only football tickets. Dalia has $2000 which he deposits into a…
Q: Question 11 of 25, Step 1 of 1 T A basket of goods and services is used to calculate the consumer…
A: The inflation rate refers to the pace at which the prices of goods and services within an economy…
Q: Suppose Amy is an avid reader and buys only comic books. Amy deposits $4,000 in a bank account that…
A: Nominal interest rate is the return on capital, that is, a percentage rise in money that the lender…
Q: rates are rounded to the nearest tenth of a percent.) Year 1971 1972 1973 1974 1975 INTEREST RATE…
A: The interest rate before inflation is known as the nominal interest rate. The nominal interest rate…
Q: You are given a loan with a nominal interest rate of 5%. You must pay back this loan one year from…
A: The nominal interest rate the interest rate that you earn or pay on money that you lend or borrow;…
Q: Suppose that the level of unemployment in the economy is determined by the follow equation: U = 5.24…
A: Generally, there has been an negative association between inflation and unemployment. This implies…
Q: If the price level increases by 70% in one year, then for the nominal rate of interest to be 10%,…
A: The interest set at the beginning of any time period based on the inflation anticipated reflects the…
Q: Suppose Neha is a cinephile and buys only movie tickets. Neha deposits $3,000 in a bank account that…
A: When there is inflation and interest rate, purchasing power depends positively on interest rate and…
Q: Dean borrows $400 from Tim. Tim wants to make a 7% real return on his money, so they both agree on…
A: Inflation rate and rate of return: The inflation rate determines the growth rate of the overall…
Q: Nelson, a management trainee at a large New York-based bank, is trying to estimate the real rate of…
A: Real interest rate = Nominal yield - Inflation rate, where Inflation rate = % Change in CPI
Q: Sarah wants to make an 8% real return on a loan that she is planning to make, and the expected…
A: Inflation is the increase in price level over the year. Inflation rate is the measure of inflation…
Q: If an investment has a nominal return of 3.8% per year, while the inflation is expected to be 3.6%…
A: Real return is the interest rate adjusted for inflation. Nominal return does not account for price…
Q: Suppose Frances is an avid reader and buys only mystery novels. Frances deposits $2,000 in a bank…
A: The percentage that increases or decreases in prices during a specified period, usually a month or a…
Q: Suppose you borrow $1,000 of principal that must be repaid at the end of two years, along with…
A: Inflation refers to the sustained increase in the general price level of goods and services in an…
Q: If the nominal interest rate on an asset is 10% and inflation is also 8%, what is the real interest…
A: The nominal interest rate is the percentage increase in money you pay the lender for the use of the…
Q: Suppose that the level of unemployment in the economy is determined by the follow equation: U = 6.72…
A: INTRODUCTION: Inflation: Inflation means the overall increase in the price of almost all the…
Q: Suppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement…
A: First, we need to understand the difference between the nominal interest rate and the real interest…
Q: Suppose a nominal interest rate is 12%, and the expected rate of inflation is 9%. If next year the…
A: The inflation rate is a measure of % change in the P level of goods in an economy over a specified…
Q: nominal interest rate is 4% .Suppose that the actual inflation rate turns out to be 4% as well. What…
A: The Fisher effect depicts the relationship between real and nominal rate of interest…
Q: Suppose the nominal interest rate is 0.64 and the expected inflation rate is 0.47 1) What is the…
A: The objective of the question is to calculate the exact and approximate real interest rate given the…
Q: If inflation is currently 2.55% and a bank is lending money at 7.75% interest, what is the real…
A: Inflation (I) = 2.55% Bank interest rate (R) = 7.75%
Q: If the nominal interest rate on a loan was 10 percent and the real interest rate was 8 percent, then…
A: The term "real interest rate" refers to the market interest rate that has been adjusted for…
Q: Let's assume that Enrique borrows $420,000 from the Bank of America and let's assume that the…
A: The real interest rate is actual earning on investment. The nominal interest rate does not tell us…
Q: Consider a labor market where the matching function UV is given by H (U,V) = A, where A=0.5. U+V'…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Assume you have won a lottery prize of $5,000, which works out great since you want to buy a new…
A: Answer is given below Explanation:
Q: The following table shows the average nominal interest rates on six-month Treasury bills between…
A: find below the answer.
Q: the nominal rate on a $1,000 investment is 12.75 percent. the expected rate of inflation is 2.25…
A: Nominal interest rate refers to the rate of interest which is not adjusted for inflation. Inflation…
Q: Suppose a person works hard at a job after graduation and after her first year, her effort is…
A: A consumer like the person in the question is never bothered about the money in numerical terms…
Q: Suppose you take out a loan at your local bank. The bank expects to earn an annual real interest…
A: The nominal interest rate is the interest rate, arrived without adjusting for inflation, at which an…
Q: Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: You are a saver, and you deposit your savings in your savings account at your local bank. The bank…
A: The inflation rate shows a general rise in the price level of different goods and services. The real…
Q: Suppose I lend my friend Peter $100 for one year, and he agrees to repay me with interest. We each…
A: The real rate of return is the Nominal rate of return adjusted for the Inflation rate.
Q: Suppose you want to earn a real interest rate of 5%. For inflation rates of 0.0, 1.0, 2.0, …, 9.0,…
A: We know that the combined interest rate means that the relationship between inflation and the real…
Q: There is a persistent fear that there will be a high level of deflation. Many economists warn that…
A: Following are the given values: Nominal interest rate = 5.25% Expected inflation = 1.50% Actual…
Q: Suppose Eileen is an avid reader and buys only comic books. Eileen deposits $4,000 in a bank account…
A: The purchasing power(pp) of $4000 deposited in the account of individual E is calculated below when…
Q: Suppose that the inflation rate during a year is 5 per cent. During that year, you deposited $500 in…
A: Present value is the value of investment in today's dollar. Future value is the value of investment…
Q: Suppose Ginny is an avid reader and buys only comic books. Ginny deposits $3,000 in a bank account…
A: Hi! Thank you for the question, As per the honor code, we are allowed to answer three sub-parts at a…
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Michelle has won a prize that will pay her $1000 per year, starting one year from today,for 15 years. Inflation is expected to be 3% per year for the next 15 years, and her interest rate is 5% per year. What is the present value of this prize today? (Treat the 3% inflation as a negative 8, thus g = -3%, and i is 5%)Suppose Damaris is a sports fan and buys only football tickets. Damaris deposits $3,000 into a savings account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a football ticket has a price of $15.00. Initially, Damaris's $3,000 deposit has a purchasing power of football tickets. For each of the annual inflation rates given in the following table, first determine the new price of a football ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Damaris'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 football ticket. For example, if you find that the deposit will cover 20.7 football tickets, you would round the purchasing power down to 20…Suppose Cho is a cinephile and buys only movie tickets. Cho deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Cho'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 movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Cho will not buy seven-tenths of a movie ticket. Fill in the annual inflation chart Choices…
- Suppose Rosa is a cinephile and buys only movie tickets. Rosa 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 movie ticket is priced at $10.00. Initially, the purchasing power of Rosa's $3,000 deposit is movie tickets. For each of the annual Inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Rosa'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 movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Rosa will not buy…The following table shows the average nominal interest rates on six-month Treasury bills between 1997 and 2001, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1997 to 2001. (All rates are rounded to the nearest tenth of a percent.) Nominal Interest Rate Inflation Fte Year (Percent) (Percent) 1997 5,2 2.3 1998 4.8 1.5 1999 4.8 2.2 2000 5.9 3.4 2001 3.4 2.8 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 1997 to 2001. Next, use the green points (triangle symbol) to plot the real interest rates for those years.You purchase a certificate of deposit that pays an advertised rate of 2.25% interest per year. What is your nominal rate of return if the actual inflation rate is 1.65%? ○ -0.6% ○ 2.25% ○ 1.65% ○ 0.6%
- Assume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $117 at the end of the year. If inflation over that one year is 8%, what real rate of interest does Sarah earn on her $100?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…Bob loans his sister-in-law $1000 so she can make her rent. She must pay it back after one year. If Bob charges her 6 percent interest and wants to get a real return (real interest) of 3.5 percent, Bob must anticipate that inflation will be___________ percent over the next year. (Carefully follow all numeric instructions. Enter your answer "as a percent, but without the percentage sign." In other words, if you think Bob predicts 99.99 percent inflation, just enter 99.99 in the blank.)
- The purchasing power (real value of money) decreases if inflation is present in the economy. For example, the purchasing power of $33,000 after t years of 8% inflation is given by the model P=33,000e−0.08t dollars. How long will it take for the value of a $33,000 pension to have a purchasing power of $16,500 under 8% inflation?Assume the nominal rate of return is 8.63% and the real rate is 4.68%. Find the inflation rate of return using the exact formula.Suppose Damaris is a sports fan and buys only football tickets. Damaris deposits $2,000 into a savings account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a football ticket has a price of $10.00. Initially, Damaris's $2,000 deposit has a purchasing power of football tickets. For each of the annual inflation rates given in the following table, first determine the new price of a football ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Damaris'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 football ticket. For example, if you find that the deposit cover 20.7 football tickets, you would round the purchasing power down to 20 football…