Suppose the government passes a new law that sets a limit on the interest rate that credit card companies can charge on overdue balances. As a result, the nominal interest rate charged by credit card companies falls from 24 percent a year to 10 percent a year. If the average income tax rate is 25 percent, explain how the real after-tax interest rate on overdue credit card balances changes. >>> Answer to 1 decimal place. Before the new law is passed, the real after-tax interest rate on credit card balances is inflation rate. percent the

Suppose the government passes a new law that sets a limit on the interest rate that credit card companies can charge on overdue balances. As a result, the nominal interest rate charged by credit card companies falls from 24 percent a year to 10 percent a year. If the average income tax rate is 25 percent, explain how the real after-tax interest rate on overdue credit card balances changes. >>> Answer to 1 decimal place. Before the new law is passed, the real after-tax interest rate on credit card balances is inflation rate. percent the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. Inflation can redistribute wealth between borrowers and savers. Consider the following four cases. In each case, assume that when the loan was negotiated the nominal interest rate was set such that the lender would earn a 3% real return based on inflation expectations. Apply the Fisher effect to calculate the agreed upon nominal interest rate. Given that the actual inflation differs from the expected inflation rate, what was the actual real interest rate over the course of the loan? Who was harmed from the unexpected change? The borrower or the lender? Explain. Nominal Actual (Actual) real Who gets Expected inflation Expected real return interest rate inflation rate interest rate hurt? (Επ) (1) Borrower or lender 4% 3% 5% 6% 3% 4% -1% 3% 1% 3% 3% 3%
Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds. What are the new equilibrium real interest rate and the quantity of loanable funds? 5.0 4.5 4.0 3.5 3.0 Supply Real interest rate: Interest rate 2.5 2.0 1.5 1.0 0.5 0.0 0 20 40 40 % Loanable funds: $ Demand 60 80 100 120 Loanable funds (millions) 140 160 180 200 million
Suppose the nominal rate of interest on a savings account is 15%, the real rate of interest is 3%, and the tax rate on nominal interest is 20%. Which of the following is true? A saver would lose 9% real interest. A saver would neither gain nor lose real interest. A saver would earn 12% real interest. A saver would earn 2.4% real interest.
Which of the following is true about the expected real interest rate? A) It is equal to the nominal interest rate plus the expected inflation rate. B) It is equal to the ratio of the nominal interest rate to the inflation rate. It increases as the price level increases. D) It is always positive. E It is negative if the expected inflation rate exceeds the nominal interest rate.
the nominal rate on a $1,000 investment is 12.75 percent. the expected rate of inflation is 2.25 percent. find the exact expected real rate of interest .
Suppose the interest rate that banks in Techland charge one another for overnight loans is 5 percent, the long-term nominal interest rate is 4.5 percent, and the long-term expected inflation rate is 3 percent. What is the long-term expected real interest rate? How will the long-term expected real interest rate be affected if the central bank of Techland starts purchasing government bonds from banks?
Interest Rate Qty. supplied Qty. demanded 5% 130 170 6% 135 150 7% 140 140 8% 145 135 9% 150 125 10% 155 110 The table above shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Describe how you can tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate level. Calculate the new equilibrium interest rate and quantity and explain why the direction of the interest rate shift makes sense.
How does the graph look for the effect of a temporary but persistent increase in total factor productivity on current real interest rates. I know that the x axis is the investment and the y axis is the real interest rates but im not sure how the graph should look. Could you show me what the graph should look like?
Consider the following table from Source: 5220.0 Australian National Accounts: State Accounts, Table 7 - Tasmania, that gives nominal GSP (current prices) and real GSP (chain volume) for Tasmania. Tas GSP Tas GSP (Current (Chain Volume) 28931 Prices) Jun-2017 30019 Jun-2018 30263 30975 Jun-2019 31993 31993 Jun-2020 32904 32102 a. Calculate the implicit GSP price deflator. Feel free to use MS Excel. 6. Calculate the growth rate in Nominal GSP, Real GSP and the price deflator. c. What do you notice about the sum of the Real GSP and price deflator growth rates?
The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the peso.
Assume that the money supply in an economy is $900 million, the velocity of money is constant at 5, and the price per unit of output is $3. What is the real and the nominal GDP? The real GDP is $1,500 million, and the nominal GDP is $3,500 million. The real GDP is $1,600 million, and the nominal GDP is $4,500 million. The real GDP is $4,500 million, and the nominal GDP is $1,500 million. The real GDP is $1,500 million, and the nominal GDP is $4,500 million. The real GDP is $3,500 million, and the nominal GDP is $700 million.