8, Q1) Hey, need help with the following multi-part macroeconomics problem. Thank you in Advance! Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan.Recently, the rate paid by banks on savings accounts was 0.1 percent. However, at the same time, inflation was around 1.5 percent. What was the saver’s real rate of interest on his or her savings?Banks expect that the inflation rate in the long run will be 2 percent. They want a real return of 1 percent on their mortgage loans. What nominal rate should they charge home buyers looking for a mortgage? Explain using the Fisher equation.

The Fisher equation is an economic formula that relates the nominal interest rate, the real interest…

Answered: Recently, the rate paid by banks on…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8, Q1) Hey, need help with the following multi-part macroeconomics problem. Thank you in Advance!

Optimizing economic agents use the real interest rate when thinking about the economic costs and returns of a loan.

Recently, the rate paid by banks on savings accounts was 0.1 percent. However, at the same time, inflation was around 1.5 percent. What was the saver’s real rate of interest on his or her savings?
Banks expect that the inflation rate in the long run will be 2 percent. They want a real return of 1 percent on their mortgage loans. What nominal rate should they charge home buyers looking for a mortgage? Explain using the Fisher equation.

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