Interest rates can be expressed in real or nominal terms. Which of the following is most correct? a. Because market rates are usually in nominal terms, cash flows will usually be in inflation-adjusted terms. b. Market rates are only meaningful in nominal terms, because an accurate adjustment for inflation is not possible. c. Real interest rates can be calculated as the difference between nominal rates and the inflation rate. d. Market rates are always expressed in real terms, because it is important that inflation be included in financial assessment.

Interest rates can be expressed in real or nominal terms. Which of the following is most correct? a. Because market rates are usually in nominal terms, cash flows will usually be in inflation-adjusted terms. b. Market rates are only meaningful in nominal terms, because an accurate adjustment for inflation is not possible. c. Real interest rates can be calculated as the difference between nominal rates and the inflation rate. d. Market rates are always expressed in real terms, because it is important that inflation be included in financial assessment.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 11P

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Similar questions

Which of the following statements about inflation is true? A. Inflation is not a problem because it is just another way for the government to collect revenue—an alternative to the income tax or the sales tax. B. Inflation is a tax on holding money. C. Inflation occurs when real GDP grows more rapidly than the quantity of money. D. Inflation is a tax on spending money.
Assuming the nominal interest rate is positive, ceteris paribus, which of the following statements is correct? a. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. b. When the inflation rate is positive, ceteris paribus, the real interest rate will be less than the nominal interest rate. c. When the inflation rate is zero, ceteris paribus, the nominal interest rate will be less than the real interest rate. d. If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is -3 percent.
Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. a. What is the real interest rate? b. What if the inflation premium is 3 percent while the nominal interest rate is 0.5 percent?
If borrowers and lenders anticipate that the rate of inflation will be 5%, but instead it turns out to be 3%, which of the following is likely to occur? Select one: a. The real interest rate is higher than expected. b. Lenders wish that they had made fewer loans. c. Borrowers wish that they had borrowed more money. d. Insufficient loans will have been made by lenders to maintain profit levels.
Which of the following statements about prices and inflation is not correct? A. The inflation rate shows the percentage change in prices across periods of time. B. Prices generally increase at the same rate across most periods of time. C. The price level measures the average prices of goods and services across the economy. D. Inflation represents a general rise in prices over periods of time
Which of the following describes a situation in which the person is hurt by inflation? Select one: a. a person paid a fixed income during an inflationary period b. a retiree whose pension is adjusted for inflation c. a person who borrows money during a period when inflation is under-predicted d. a person who lends money during a period when inflation is over-predicted
Which of the following is most likely to be true if the rate of inflation rises sharply? a. Businesses will be able to manage rising costs b. Businesses will not be able to manage rising costs c. Businesses are less likely to raise selling prices d. Businesses can reduce selling prices
Inflation and interest rates a) Define/explain the consumer price index. b) Suppose that the nominal interest rate is 6.5% per year and you borrow $200. How much money will you have to repay in a year? c) Suppose that the nominal interest rate is again 6.5% and inflation is 1%. What is the real interest rate? d) Now suppose that the nominal interest rate is 1% and the inflation rate is 1.5%. What is the real interest rate? Would you like to be a lender or a borrower in this case? Why? Please explain/show how to do the calculations
Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan. a. What was the expected real interest rate? b. What was the actual real interest rate?
Identify how each of the following individuals is influenced by unexpected inflation. a. A sales representative paid a set percentage commission based on the dollar value of her sales is (Click to select) due to unexpected inflation. b. A financial investor who lives off income made from buying and selling mortgaged commercial property is (Click to select) due to unexpected inflation. c. A retiree who lives on interest payments from his bank deposits is (Click to select) due to unexpected inflation. d. A storekeeper whose costs and revenues both rise by inflation is [ (Click to select)) due to unexpected inflation. e. A person who lives off income made buying and selling items on online auction sites is (Click to select) due to unexpected inflation. f. A worker with a union contract that incorporates partial indexation of her wage i ✓ (Click to select) due to unexpected inflation. unaffected better off worse off
Suppose there are 1200 units of money on an island, but money grows by 5.32% per year. Islanders spend each unit of money 2.3 times per year on average and this spending grows by 1.98%. The price level is at 34. GDP is expected to grow at 4.83%. What is the level of inflation? Answer this as a percentage without the percentage sign and round this to two digits after the decimal. ex. If you found the rate to be 5.125%, answer 5.13.
If my nominal wages go up 5% this year and inflation is 2% this year, what happened? a) All of the choices are correct. b) I experience an increase in my both my nominal income and in my real income. c) My nominal wages increased more than the increase in the overall price level. d) My real wages increased by approximately 3%