Tamika is lending Juan $1,000 for one year. The CPI is 1.60 at the time theloan is made, and they both expect it to be 1.68 in one year. If Tamika andJuan agree that Tamika should earn a 3 percent real return for the year,the nominal interest rate on this loan should bepercent.

The interest rate is the fee of borrowing cash or the go back on investment expressed as a percent…

Tamika is lending Juan $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they both expect it to be 1.68 in one year. If Juan agree that Tamika should earn a 3 percent real return the nominal interest rate on this loan should be and year, for the Tamika percent.

Tamika is lending Juan $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they both expect it to be 1.68 in one year. If Juan agree that Tamika should earn a 3 percent real return the nominal interest rate on this loan should be and year, for the Tamika percent.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 7E

See similar textbooks

Related questions

Q: Initially, the purchasing power of Hilary's $4,000 deposit is comic books. For each of the annual…

A: We have to answer this question using the formulae for the compound interest rate(SI). There is only…

Q: Sam bought a rental property for 500,000 five years ago. He sold the property this year for…

A: Sam bought a rental property for $500,000 five years ago. He sold the property this year for…

Q: Ellena's pension was $10 per period in 2033. What amount of money in the base year would give her…

A: Interpretation of Price Indices: Rs 100 in 2033 hold the same purchasing power as Rs. 90 in 2031.…

Q: Assume the CPI was 100.0 in 2002 and 125.2 in 2014. Jan’s wage at ABC Innovation was $60,000 in 2002…

A: Pay adjusted for inflation or wages expressed in terms of the quantity of goods and services that…

Q: 8. Interest, inflation, and purchasing power Suppose Yvette is a cinephile and buys only movie…

A: Yvette deposits $1000 and earns 5% interest on deposits. Initially she has $1000 to spend on movie…

Q: If the cost of apparel increases by 50 percent, then, other things the same, the CPI is likely to…

A: The consumer price index (CPI) basically measure changes in the prices of goods and services…

Q: 13. In 2018 your annual salary was $54,370 per year and the CPI was 133.4. In 2022 your annual…

A: The objective of the question is to calculate the inflation-adjusted salary for the year 2022 based…

Q: Question 11 Madelynne F. deposits $1,000 in a savings account that pays an annual interest rate of 4…

A: PLEASE FIND THE ANSWER BELOW.

Q: ssume that Gabriel earned a nominal wage rate of $15 per hour in 2019, the base year for the CPI.…

A: Real wage rate = Nominal wage rate x (Current year CPI / Base year CPI) In base year, CPI is always…

Q: On January 1, 2012, Albert invested $10,000 at 6 percent interest per year for three years. The CPI…

A: A consumer price index measures the basket of goods purchased by households. It is used to calculate…

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: Here are hypothetical values of the CPI (multiplied by 100) for each year from 2000 to 2010. For…

A: The formula to calculate the inflation rate for 2002–2003 is given below: = {[CPI (2003) - CPI…

Q: Assume you put money into an asset that pays you 7 percent interest and inflation is 5 percent.…

A: The inflation rate is the rate at which the price level increases over time. The inflation rate is…

Q: On January 1, 2011, Maria invested $1,000 at 6 percent interest per year for three years (with…

A: Real Interest Rates The interest rate that takes inflation into account is called a real interest…

Q: Samantha is lending Jack $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they…

A: Nominal interest rate is the rate of interest that is not inflation adjusted. Real interest rate is…

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: If the capital gains tax is imposed at a rate of 50 percent, what is Cody's after-tax real capital…

A: Nominal interest rate is the interest rate not adjusted for inflation Real interest rate is the…

Q: Book Print Problem 18-08 (algo) On January 1, 2012, Albert invested $20,000 at 5 percent interest…

A: Certainly! The problem involves calculating the total interest earned by Albert over a period during…

Q: 13. In 2018 your annual salary was $54,370 per year and the CPI was 133.4. In 2022 your annual…

A: The objective of the question is to calculate the inflation-adjusted salary for the year 2022 based…

Q: 13. In 2018 your annual salary was $54,370 per year and the CPI was 133.4. In 2022 your annual…

A: The objective of the question is to calculate the inflation-adjusted salary for the year 2022 based…

Q: Suppose that at the start of 1999, Ari invests their money in a savings account earning 3.6%…

A: Real interest rate = Nominal interest rate-rate of inflation

Q: Elvira has a major building project. She will need to borrow money. If she can borrow money at a…

A: The Consumer Price Index (CPI) is a measure that examines the average change in prices paid by urban…

Q: If the CPI rose by 68% over a five year period, what was the average annual growth rate of the CPI?

A: A measure used to estimate the average change over time in the prices paid by consumers for a market…

Q: Barbara Jones left a $25,000 job as an architect to run a catering business. She invested $100,000…

A: Salaries, supplies, etc.: $150,000Initial investment in the building: $100,000 (This is considered a…

Q: Suppose Poornima is an avid reader and buys only comic books. Poornima deposits $3,000 in a bank…

A: The purchasing power of money measures the quantity of goods that can be purchased by spending the…

Q: On January 1, 2012, Albert invested $2,000 at 5 percent interest per year for three years. The CPI…

A: The cost of living is the sum of money necessary for maintaining a particular standard of living,…

Q: Sally worked hard all year and put her savings into a mutual fund that paid a nominal interest rate…

A: Inflation is the pace of rises in costs over a given timeframe. Inflation is commonly a broad…

Q: Makayla bought a $1,000, 5-year inflation - indexed bond that had a real interest rate of 5.10% when…

A: The bond market is critical to the economy because it helps governments and businesses to raise…

Q: The table below pertains to a small agricultural economy where the typical consumer's basket…

A: The Consumer Price Index or CPI is an estimation of the average change over a period in the prices…

Q: Initially, Teresa earns a salary of $400 per year and Sam earns a salary of $200 per year. Teresa…

A: Inflation refers to the rate at which the general level of prices for goods and services is…

Q: Suppose the CPI is 120 in year 1 and 150 in year 2. If First National Bank charges a nominal…

A: From the given information, first, find the inflation rate by using the CPI of year 1 and the CPI of…

Q: If the nominal rate on a loan is 7.0% and annual inflation is 3.0%, what is the real interest rate…

A: The Fisher Effect is a theory suggesting a direct relationship between nominal interest rates (i),…

Question

Tamika is lending Juan $1,000 for one year. The CPI is 1.60 at the time the
loan is made, and they both expect it to be 1.68 in one year. If Tamika and
Juan agree that Tamika should earn a 3 percent real return for the year,
the nominal interest rate on this loan should be
percent.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define interest rate

VIEW

Step 2: Calculate the nominal interest rate

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 8 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI.
Why do you mink the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries?
The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate man using the GDP deflate:
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of 20,000. However, if the inflation rate is 6 per year, how much buying power will that 20,000 have when measured in todays dollars? Hint: Start by calculating the rise in the price level over the 16 years.
How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
Construct the price index for a fruit basket in each year using 2003 as the base year.
If you an? out of school but working part time, are you considered employed or unemployed in U.S. labor statistics? If you are a full time student and working 12 hours a week at the college cafeteria are you considered employed or not in the labor force? If you are a senior citizen who is collecting social security and a pension and working as a greater at Wal-Mart are you considered employed or not in the labor force?
The prime interest rate is the rate that banks charge their best customers. Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years would it have been best to be a lender? Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years given would it have been best to be a borrower?