Given the real interest rate of 3% per year, find the nominal interest rate on Tim's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Real Inflation Rate After-Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate Interest Rate (Percent) (Percent) 3.0 Nominal Interest Rate (Percent) (Percent) 1.5 6.5 3.0 * the after-tax real Compared with lower inflation rates, a higher inflation rate will interest rate when the government taxes nominal interest income. This tends to saving, thereby the economy's long-run growth rate. the quantity of investment in the economy and

Given the real interest rate of 3% per year, find the nominal interest rate on Tim's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Real Inflation Rate After-Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate Interest Rate (Percent) (Percent) 3.0 Nominal Interest Rate (Percent) (Percent) 1.5 6.5 3.0 * the after-tax real Compared with lower inflation rates, a higher inflation rate will interest rate when the government taxes nominal interest income. This tends to saving, thereby the economy's long-run growth rate. the quantity of investment in the economy and

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. The index number representing the price level changes from 110 to 115 in 2019, and then from 115 to 120 in 2020. Since the index number increases by 5 this year, is five the inflation rate each year? Is the inflation rate the same each year?. NOTE: Explain and support the answer with calculations. 2. The total price of purchasing a basket of goods over four years is; year 1 - P940 year 2 - P970 year 3 - P1,000 year 4 - P1,070 Calculate two price indicates, one using year 1 as the base year (set equal to 100) and the other using the year 4 as the base year (set equal to 100). NOTE: Explain and support the answer with calculations.
12. Inflation-induced tax distortions Ashwin receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Ashwin's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate (Percent) (Percent) (Percent) (Percent) 2.5 4.5 7.0 4.5 Compared with higher inflation rates, a lower inflation rate will nominal interest income. This tends to ▼saving, thereby the economy's long-run growth rate. After-Tax Real Interest Rate (Percent) the…
Suppose the nominal interest rate on savings accounts is 12% per year, and both actual and expected inflation are equal to 5%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Time Period Before increase in MS Immediately after increase in MS Nominal Interest Rate (Percent) 12 12 Expected Inflation (Percent) 5 5 The unanticipated change in inflation arbitrarily benefits Actual Inflation (Percent) 5 10 Expected Real Interest Rate (Percent) Actual Real Interest Rate (Percent) Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 5% to 10% per year. Complete the second row of the table by filling in the expected and actual real interest rates on savings accounts immediately after the increase in the money supply (MS). Now consider the long-run impact of the change in money growth and inflation. According to…
The table below shows the annual change in the average nominal wage and inflation rate since 2008. a. Compute the percentage change in real income for each year shown in the table. Instructions: In part a, round your answers to two decimal places. In parts b and c, enter your answers as a whole number. If entering a negative number, include a minus sign. Percentage Changes in Nominal Income and Prices Year 2008 2009 2010 2011 2012 2013 Annual Inflation Rate (percent) 3.92% -0.36 1.66 3.24 2.11 1.48 Annual Nominal Wage Growth (percent) 0.34% -1.24 -0.76 1.4 2.76 2.28 Annual Real Wage Growth (percent) (0.39) x % (0.88) ♥ 2.42 x 9.87 x b. Of the years listed above, the paycheck of the average worker declined in 2 c. Of the years listed above, the purchasing power of the average worker declined in of the six years. 4 of the six years. d. The average real income of households can increase whether the nominal wage increases or decreases
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Suppose you'll have an annual nominal income of $20,000 for each of the next three years, and the inflation rate is 5 percent per year. Hint: Present value = Future value = (1 + Growth in prices)* = Real value of next year's income = Next year's income ÷ (1+ Growth in prices) Instructions: Round your responses to the nearest whole dollar. a. Find the real value of your $20,000 salary for each of the next three years. Year 1: $ Year 2: $ Year 3: $ b. If you have a COLA in your contract, what is the real value of your salary for each year? Year 1: $ 19047 Year 2: $ 18144 Year 3: $ 17276
The real interest rate is 6 percent a year and the income tax rate is 50 percent. With no inflation, what is the real after-tax interest rate? If the inflation rate rises to 4 percent a year, what is the real after-tax interest rate?
A. Find the real value of your 40,000 salary for each of the next three year's. year1? year2? year3? b. If you have a cola in your contract, and the inflation rate is 5 percent, what is the real value of your salary for each year? year1? year2? year3?
Assume the expected rate of inflation is 3 percent per year. What nominal interest rate should you charge to receive a real interest rate of 2 percent per year?
assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 1 percent. Calculate the real rate of interest.
Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. Instructions: in part a, enter your answer as a whole number. In part b, round your answer to 1 decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers a. What is the real interest rate? percent b. What is the real interest rate if the inflation premium is 3 percent while the nominal interest rate is 0.5 percent? percent
2-5 Kraft and Cadbury When Kraft recently bid $16.7 billion for Cadbury, Cadbury’s market value rose, but Kraft’s market value fell by more. What does this tell you about the value-creating potential of the deal? for one of the surgeries has increased by about 10% each year since 1995, whereas the other has increased by only 2% per year. Which of the surgeries has the lower inflation rate? Why?