Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 12QP
To determine
The real interest rate.
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Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 19QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNGCh. 14 - Prob. 7WNGCh. 14 - Prob. 8WNG
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- True or false? The nominal rate of interest is the difference between the real rate and the expected rate of inflation.arrow_forwardFor each of the following years, determine the real interest rate. Find the difference between this rate and the desired real interest rate and explain how any difference affects borrowers and lenders. Write out percentage rates as whole numbers e.g. 5%. a. In year 1, the nominal interest rate is 10%, the inflation premium on loans is 4%, and actual rate of inflation is 5%. %, the desired real interest is %, borrowers are (Click to select) and lenders are The real interest rate is (Click to select) b. In year 2, the nominal interest rate is 11%, the inflation premium is 5%, and the actual rate of inflation is 3%. %, borrowers are (Click to select) %, the desired real interest is The real interest rate is (Click to select) ✓ c. In year 3, the nominal interest rate is 9%, the inflation premium is 3%, and the actual rate of inflation is 3%. %, borrowers are (Click to select) and lenders are The real interest rate is (Click to select) %, the desired real interest is and lenders arearrow_forwardSuppose a nominal interest rate is 12%, and the expected rate of inflation is 9%. If next year the expected rate of inflation rises to 11%, what would most likely happen as a result?arrow_forward
- Refer to the hypothetical data in the table to answer the three questions. What was the real interest rate in 2017? What was the inflation rate in 2018? What was the nominal interest rate in 2019? % % % Year Nominal interest rate Real interest rate Inflation rate 2017 7% 2018 2019 3% 1% 7% 7% 5%arrow_forwardFor each of the annual inflation rates given in the following table, first determine the new price of a comic book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Eileen's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest comic book. For example, if you find that the deposit will cover 20.7 comic books, you would round the purchasing power down to 20 comic books under the assumption that Eileen will not buy seven-tenths of a comic book.arrow_forwardThe Nominal Interest rate and inflation rate in an economy is same. What will be the real interest in such case?arrow_forward
- For each of the following years, determine the real interest rate. Find the difference between this rate and the desired real interest rate and explain how any difference affects borrowers and lenders. Write out percentage rates as whole numbers e.g. 5%. a. In year 1, the nominal interest rate is 9%, the inflation premium on loans is 5%, and actual rate of inflation is 6%. The real interest rate is 1%, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select) ♥ b. In year 2, the nominal interest rate is 10%, the inflation premium is 6%, and the actual rate of inflation is 4%. %, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select) v The real interest rate is c. In year 3, the nominal interest rate is 8%, the inflation premium is 4%, and the actual rate of inflation is 4%. |%, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select) - The real interest rate is 曲arrow_forwardSuppose the nominal interest rate is 0.64 and the expected inflation rate is 0.47 1) What is the exact real interest rate? 2) What is the approximate real interest rate?arrow_forwardIs the Market interest rate commonly known as the nominal interest rate? Why?arrow_forward
- Do you think a negative nominal interest rate can happen? What about a negative real interest rate? Explain.arrow_forwardSuppose 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_forwardSuppose the nominal interest rate on savings deposits is 3% and inflation is running at 5%. What happens to your money and the real interest rate?arrow_forward
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