The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which determined thenominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1971 to1975. (All rates rounded to the nearest 0.1 percent.)Year197119721973INTEREST RATE (Percent)197419758.0Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.7.0On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the greenpoints (triangle symbol) to plot the real interest rates for those years.6.05.04.03.02.01.00-1.0 +-2.0-3.0Nominal Interest Rate(Percent)4.54.57.21970OOOOO 1971O 1972O 19738.0O 19746.11971O 1975Inflation Rate(Percent)4.23.36.311.09.119721973YEAR197419751976According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?ONominal Interest RateAReal Interest Rate(?)

The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1971 t 1975. (All rates rounded to the nearest 0.1 percent.) Year 1971 1972 1973 1974 1975 INTEREST RATE (Percent) Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 -1.0 -2.0 -3.0 Nominal Interest Rate Inflation Rate (Percent) 4.5 4.5 7.2 8.0 6.1 1970 OOO O O 1971 O 1972 O 1973 O 1974 1971 O 1975 (Percent) 4.2 3.3 6.3 11.0 9.1 1972 1973 YEAR 1974 According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? 1975 1976 Nominal Interest Rate Real Interest Rate (?)

The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1971 t 1975. (All rates rounded to the nearest 0.1 percent.) Year 1971 1972 1973 1974 1975 INTEREST RATE (Percent) Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0 -1.0 -2.0 -3.0 Nominal Interest Rate Inflation Rate (Percent) 4.5 4.5 7.2 8.0 6.1 1970 OOO O O 1971 O 1972 O 1973 O 1974 1971 O 1975 (Percent) 4.2 3.3 6.3 11.0 9.1 1972 1973 YEAR 1974 According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? 1975 1976 Nominal Interest Rate Real Interest Rate (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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?
4. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1997 and 2001, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1997 to 2001. (All rates rounded to the nearest 0.1 percent.) Year 1997 1998 1999 2000 2001 Nominal Interest Rate (Percent) 5.2 4.8 4.8 5.9 3.4 Inflation Rate (Percent) 2.3 1.5 2.2 3.4 2.8 Source: "FRED Economic Data Federal Reserve Bank of St. Louis, last modified September 23, 2015, accessed September 24, 2019, he//fred.stiouisfed.org.
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Refer to the hypothetical data in the table to answer the three questions. What was the real interest rate in 2017? Year Nominal interest rate Real interest rate Inflation rate 2017 3% — 5% 2018 5% 5% — 2019 — 3% 1% % What was the inflation rate in 2018? % What was the nominal interest rate in 2019? %
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