Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 5WNG
(a)
To determine
The real interest rate.
(b)
To determine
The real interest rate.
(c)
To determine
The real interest rate.
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Students have asked these similar questions
Suppose nominal interest rates increase from 8 percent to 10 percent, while inflation
increases from 3 percent to 12 percent. What then happens to the real interest rate?
It falls from 5 percent to -2 percent.
It rises from -2 percent to 5 percent.
It falls from 12 percent to 8 percent.
It rises from 8 percent to 12 percent.
assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 1 percent. Calculate the real rate of interest.
If you deposit money in the bank for one year
scenario 1: nominal interest rate = 10%, inflation rate = 0% 
Scenario 2: normal interest rate = 25%, inflation rate = 15%
In which scenario does the real value of the deposit grow the most? Explain.
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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Similar questions
- You put money in an account and earn a real interest rate of 10 percent. Inflation is 4 percent, and your marginal tax rate is 40 percent. What is your after-tax real interest rate? 3.2 percent 2.4 percent 1.8 percent 4.4 percentarrow_forwardIf Dave loans funds at 2 percent while the inflation rate is 4 percent, his real rate of interest is -2 percent?arrow_forwardThe two-year interest rate is 14.0% and the expected annual inflation rate is 7.0%. a.What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b-1. If the expected rate of inflation suddenly rises to 9.0%, what does Fisher’s theory say about how the real interest rate will change? multiple choice Real rate decreases Real rate does not change Real rate increases b-2. If the expected rate of inflation suddenly rises to 9.0%, what will be the new nominal rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)arrow_forward
- Suppose that in the country of Eurasia, the velocity of money is constant. Real GDP grows at a rate of 2 percent per year, the money stock grows by 8 percent per year and the nominal interest rate is 9 percent. What is a. The growth rate of nominal GDP? b. The inflation rate? c. The real interest rate?arrow_forwardSuppose there are 1200 units of money on an island, but money grows by 5.32% per year. Islanders spend each unit of money 2.3 times per year on average and this spending grows by 1.98%. The price level is at 34. GDP is expected to grow at 4.83%. What is the level of inflation? Answer this as a percentage without the percentage sign and round this to two digits after the decimal. ex. If you found the rate to be 5.125%, answer 5.13.arrow_forward2. How does a very high rate of inflation affect individual spending and saving? Explain your answer.arrow_forward
- If the nominal interest rate is 4.2 percent and expected inflation rate is 3 percent, the real interest rate equals 7.2 percent. 1.2 percent. 3.6 percent. 12.6 percent. none of the abovearrow_forward12. Holding other factors constant, an unexpected increase in the rate of inflation will have no effect on the 'real' interest rate. tend to hurt lenders because it will reduce their 'real' rate of return. increase the 'real' interest rate. tend to hurt borrowers if their incomes rise at the same rate as inflation. do none of the other options.arrow_forwardAssume the nominal interest rate is 17 percent and the expected rate of inflation is 12 percent. Calculate real rate of interest.arrow_forward
- Suppose the inflation premium is 8.00 percent and the nominal interest rate is 4.00 percent. Instructions: In part a and b, round your answers to 2 decimal places. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the real interest rate? b. What if the inflation premium is 9.00 percent while the nominal interest rate is 2.00 percent?arrow_forwardWhich of the following combinations of real interest rates and inflation implies a nominal interest rate of 7 percent? a real interest rate of 5.5 percent and an inflation rate of 3 percent a real interest rate of 4 percent and an inflation rate of 11 percent a real interest rate of 6 percent and an inflation rate of 1 percent a real interest rate of 2.5 percent and an inflation rate of 2 percentarrow_forwardWhich of the following is true about the expected real interest rate? A) It is equal to the nominal interest rate plus the expected inflation rate. B) It is equal to the ratio of the nominal interest rate to the inflation rate. It increases as the price level increases. D) It is always positive. E It is negative if the expected inflation rate exceeds the nominal interest rate.arrow_forward
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