The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All rates are rounded to the nearest tenth of a percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 1971 4.5 4.2 1972 4.5 3.3 1973 7.2 6.3 1974 8.0 11.0 1975 6.1 9.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All rates are rounded to the nearest tenth of a percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 1971 4.5 4.2 1972 4.5 3.3 1973 7.2 6.3 1974 8.0 11.0 1975 6.1 9.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal
interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All
rates are rounded to the nearest tenth of a percent.)
Nominal Interest Rate
Inflation Rate
Year
(Percent)
(Percent)
1971
4.5
4.2
1972
4.5
3.3
1973
7.2
6.3
1974
8.0
11.0
1975
6.1
9.1
Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
Transcribed Image Text: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
Nominal Interest Rate
5.0
4.0
Real Interest Rate
3.0
2.0
1.0
-1.0
-2.0
-3.0
1970
1971
1972
1973
1974
1975
1976
YEAR
According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?
1971
O 1972
1973
O 1974
1975
INTEREST RATE (Percent)
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