You are given the following information about the economy. the nominal interest rate = 8 percent; the real rate of interest 6 percent. The inflation premium isMultiple Choice8 percent.6 percent.2 percent.O14 percent.1@@D2Q54#3< Previ 21 of 25%5QWERANSDLLFxC6Next >&278* 0TYU66)9C00ידPVGHJKL>BNMH

Inflation Premium ExplainedIn the Fisher equation (i = r + π), the inflation premium (π) represents…

Answered: You are given the following information…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Use the table of data to answer the following question: Table 17.3 Nominal interest rate 7% Inflation rate 1.5% Risk premium 1% Suppose you have the option to purchase for $955 a two-year old bond with a $1,000 face value and one year left that has a coupon rate of 8-percent, or, purchase a new one-year bond for $1,000. What should you do? O a. Purchase used bond because the real interest rate is higher than the new bond's real interest rate. O b. Purchase new bond because the real interest rate is higher than the used bond's real interest rate. OC There is not enough information to determine the best investment option. O d. Purchase either bond because the real interest rate is the same for both options.
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12. Inflation-induced tax distortions Ashwin 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 Ashwin'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 (Percent) (Percent) (Percent) (Percent) 2.5 4.5 7.0 4.5 Compared with higher inflation rates, a lower inflation rate will nominal interest income. This tends to ▼saving, thereby the economy's long-run growth rate. After-Tax Real Interest Rate (Percent) the…
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You are given the following information about the economy: the nominal interest rate = 8 percent; the real rate of interest = 6 percent. The inflation premium is Multiple Choice O 2 percent. O 8 percent. 6 percent. O O 14 percent. MacBook Pro % 95 74 Q $ #3 M 66 E R T & 27 Y * 8 U A ll 61 0
2-1 Justin's demand for good 1 is given by the formula: x (p1, p2, I) = Suppose... 4-P1+6-p2 P1=$7/unit P2=$4/unit and I=$214 By how much will Justin's consumption of good 1 change if all prices AND his income were t increase by the same percent, as is the case here, this is called "pure inflation"). (Note: The numbers may change between questions, so read carefully) (Note: The answer may not be a whole number, so round to the nearest hundredth) 2-1 Justin's demand for good 1 is given by the formula: 2f (P1, P2, I) = how mucl 4-P1+6-p2 1=$2/unit 2=$2/unit nd =$531 Jote: The numbers may change between questions, so read carefully) Jote: The answer may not be a whole number, so round to the nearest hundredth)
3. Explain any three costs associated with inflation? Also, provide a real-world example of hyperinflation that happened in the past.
just answer part c , d and e notice that you can do it without the answer of part a and b
43) There are no costs to inflation True O False
The following graph depicts the short-run and long-run Phillips curves (SRPC and LRPC) for a hypothetical economy in long-run macroeconomic equilibrium at point A, where the natural unemployment rate is 6% and the current inflation rate is 8% per year. LRPC 18 16 12 10 A 8 4 SRPC + 0 1 4 8 9. UNEMPLOYMENT RATE (Percent) 10 20 14 INFLATION RATE (Percent)
PRICE LEVEL Point D Point E Point A +H Point B +0 A LRAS +6 +8 ON REAL GOP From point A to E to B to I to C. + From point A to B to C. From point A to D to B to H to C. From point A to D to F to H to C. + SHAS Suppose the economy is self-regulating and is at point A when it experiences a one-shot, demand-induced inflation. If there are no other changes in the economy, at what point will the economy settle? SRAS SRAS, AD₁ AD₂ AD₁ Suppose the economy is at point A when it is faced with two adverse supply shocks. The Fed tries to counter these shocks by increasing aggregate demand. What path will the economy follow?
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