The typical sacrifice ration is considered to be 5% points of GDP lost for every 1% decline in inflation. Also , Okun's laws says that 1% point of unemployment translates into 2% point of GDP .Under the typical sacrifice ratio a reduction in inflation of 6% points would entail a 30% decline in GDP and a 15% increase in the unemployment rate . However, the recent crisis has forced the government to increase inflation by 3% in order to lower unemployment by 2%, then one could calculate the actual sacrifice ration in this case to be. a) a loss of 5% of GDP b) a gain of 4% of GDP c) a loss of 3.17% of GDP d) a gain of 1.33% of GDP

The typical sacrifice ration is considered to be 5% points of GDP lost for every 1% decline in inflation. Also , Okun's laws says that 1% point of unemployment translates into 2% point of GDP .Under the typical sacrifice ratio a reduction in inflation of 6% points would entail a 30% decline in GDP and a 15% increase in the unemployment rate . However, the recent crisis has forced the government to increase inflation by 3% in order to lower unemployment by 2%, then one could calculate the actual sacrifice ration in this case to be. a) a loss of 5% of GDP b) a gain of 4% of GDP c) a loss of 3.17% of GDP d) a gain of 1.33% of GDP

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter17: Inflation

Section: Chapter Questions

Problem 20SQ

See similar textbooks

Similar questions

Gavin receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4% per year, find the nominal interest rate on Gavin's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 1.5 4.0 7.0 4.0 Compared with lower inflation rates, a higher inflation rate will (increase/decrease) the after-tax real interest rate when the government taxes…
The inflation rate in India was recorded at 4. 70 percent in May of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry. Historically, from 1969 until 2013, India Inflation Rate averaged 7. 73 Percent reaching an all time high of 34. 68 Percent in September of 1974 and a record low of -11. 31 Percent in May of 1976. In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods. In India, wholesale price index is divided into three groups: Primary Articles (20. 1 percent of total weight), Fuel and Power (14. 9 percent) and Manufactured Products (65 percent). Food Articles from the Primary Articles Group account for 14. 3 percent of the total weight. The most important components of the Manufactured Products Group are Chemicals and Chemical products (12 percent of the total weight); Basic Metals, Alloys and Metal Products (10. 8 percent); Machinery and Machine Tools (8.…
Which of the following is a potential benefit of inflation? Higher unemployment Higher prices Less government revenue More business profits
The unemployment rate is 11.5%, the natural rate of unemployment is 7.5%, and the potential rate of GDP growth is 2.25%. If the coefficient of Okun's law is 0.4%, real GDP must grow at a rate of % in order to reduce the unemployment rate to the natural unemployment rate. (Enter your response rounded to two decimal places.)
a)Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both agree that the real interest rate charged on the loan should be 10% and the loan is going to be totally paid ($20,000 plus interest), in a one-time payment, on December 31, 2020. Suppose the two parties to this transaction can perfectly foresee what the inflation rate for this period is going to be. b) Assume the same conditions exist as in the paragraph a but now the bank and the borrower cannot predict the inflation rate perfectly. Assume that both the bank and the borrower expect an inflation rate of 8% over this period of time. Given this information, what is the nominal rate charged on the loan now? Given the actual inflation rate (from your calculations and the provided data), who wins from this loan contract and who loses from this loan contract? Explain your answer fully. What if the expected inflation rate is 4% during this period? Does your answer change as to who wins and…
Suppose I lend my friend Peter $100 for one year, and he agrees to repay me with interest. We each have an expectation that the inflation rate over the coming year will be 5 percent, and so we agree that he will pay me back at a nominal rate of 7 percent interest. a) What real rate of return do I expect to receive? b) What happens if inflation turns out to be 8 percent over the year? Who is made better off and who is made worse off? c) What happens if inflation turns out to be 3 percent over the year? Who is made better off and who is made worse off?
Nick receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 20%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4% per year, find the nominal interest rate on Nick's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 1.5 4.0 8.0 4.0 Compared with higher inflation rates, a lower inflation rate will the after-tax real interest rate when the government taxes the quantity of investment in the economy and nominal interest income. This tends to…
Tim receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 3% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 20%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 3% per year, find the nominal interest rate on Tim's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Real Interest Rate After-Tax Nominal Interest Rate (Percent) After-Tax Real Interest Rate Inflation Rate Nominal Interest Rate (Percent) (Percent) (Percent) (Percent) 1.5 3.0 6.5 3.0 Compared with lower inflation rates, a higher inflation rate will interest rate when the government taxes nominal interest income. This tends to the after-tax real * the quantity of investment in the economy and…
Which of the following statements is true? A) The Okun’s law describes the positive relationship between GDP growth and inflation B) The Okun’s law describes the negative relationship between inflation and unemployment C) Inflation and GDP growth are negatively related D) The Okun’s law describes the negative relationship between GDP growth and unemployment
Antonio receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Antonio's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate (Percent) After-Tax Nominal Interest Rate (Percent) Real Interest Rate Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) 2.0 4.5 4.5 9.5 Compared with lower inflation rates, a higher inflation rate will quantity of investment in the economy and the after-tax real interest rate when the government taxes nominal interest income. This…
If the government is concerned about high inflation, it will likely implement some sort of
Suppose that the level of unemployment in the economy is determined by the follow equation: U = 7.55 1.88*(i - ie) Where U is the unemployment rate, i is the actual inflation rate, and it is the expected inflation rate. All variables are entered in percentage form (e.g. if inflation is 30.57%, you plug in 30.57 for i, not 0.3057). Last year, the inflation rate was 7.87%, and people have adaptive expectations. What does the inflation rate need to be this year in order for the unemployment rate to be 2.81%? Note: Everything is already in percentage form. You do not need to multiply or divide by 100 at any point. Enter in your answer as it is calculated in the equation. Round your final answer to two decimal places.