Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 14, Problem 11CQ
To determine
Evaluate the statement.
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What are the costs of inflation? How high inflation affects the income distribution in the economy? Explain with details.
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Chapter 14 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- Examine the effects of inflation in attention to food and accommodation expenses.arrow_forwardWhich of the following groups would most likely be harmed by inflation? Group of answer choices spenders workers retirees none of the above Older people often reminisce about the “good old days” when prices were much lower. This is misplaced nostalgia primarily because in the “good old days” Group of answer choices prices were not really that low wages were much lower also When interest rates fall, investment expenditures by businesses Group of answer choices decrease increasearrow_forwardExplain the two causes of inflationarrow_forward
- Inflation rates, like most statistics, are imperfect measures. Can you identify two ways that the inflation rate for fruit does not perfectly capture the rising price of fruit.arrow_forwardSuppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%. If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why? If the inflation rate turns out to be 3% rather than 2%, who will be helped? Why?arrow_forwardWhich of the following is the positive impact of inflation? A) Inflation causes the real value of saving for a saving person to eroded. B) Inflation makes debtors pay less in real return. C) Fixed-income people have the same income but a high cost of living. D) lender will not have the option to earn interest.arrow_forward
- Suppose banks require a real interest rate of 10 percent. If they expect inflation to be 2 percent, what is the nominal interest rate? Multiple Choice 5 percent 20 percent 8 percent 12 percentarrow_forwardExplain with the aid of a diagram, the effect of the market rate of interest being greater than the natural rate of interest on the general price level. Will this discrepancy between the two rates lead to inflation? deflation?arrow_forwardWhether one regards inflation as a “good” thing or a “bad” thing depends very much on one’s economic situation. If you are a borrower, unexpected inflation is a ["", "", "", ""] thing—it reduces the value of money that you must repay. If you are a lender, it is a ["", ""] thing because it reduces the value of future payments you will receive.arrow_forward
- Darla takes out a home loan from a bank. The bank's goal is to make 4% real interest on the loan. If the bank's economists predict that inflation will be 3.5% over the period before the loan is repaid, the bank should charge a nominal interest rate of percent. (Enter your answer "as a percent, but without the percentage sign." In other words, if you think the bank should charge 99.9 percent interest, just put 99.9 in the blank.)arrow_forwardSuppose that people expect inflation to equal 5 percent, but in fact, prices rise by 7 percent. Which of the following groups or individuals are hurt by this unexpectedly high inflation rate? Check all that apply. The government A union worker in the second year of a labor contract A homeowner with a fixed-rate mortgage A college that has invested some of its endowment in government bonds that are not indexed Treasury bondsarrow_forwardAverage inflation went up by 65.5% since the turn of the century while college tuition and fees soared by 175%. Why has the relative price of college increased so much compared to average inflation?arrow_forward
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