Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 6WNG
(a)
To determine
The nominal interest rate.
(b)
To determine
The nominal interest rate.
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Suppose 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.
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.
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.
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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- In which situation is the real interest rate lowest? Group of answer choices The nominal interest rate is 11% and the inflation rate 9%. The nominal interest rate is 8% and the inflation rate 5%. The nominal interest rate is 25% and the inflation rate 30%. The nominal interest rate is 2% and the inflation rate 1%.arrow_forwardIf 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.arrow_forwardExplain how the average inflation rates are calculated?arrow_forward
- Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percet. Then the inflation rate is 2.7 percent. Select one: True Falsearrow_forwardSuppose the bank give you a loan at 4.46% interest rate but the economy experiences inflation of 6.85%. What is the real interest rate that the bank earns from you for that given year? Answer this as a percentage and round your answer to two digits after the decimal without the percentage. ex. If you found the inflation rate to be 5.125%, answer 5.13.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
- 1. Paul and Mary wanted to get married, and they wished to purchase a house for the new family. Therefore, they had arranged a meeting with a banker to know more about the mortgage details. They all expected that inflation will be 3 percent over the borrowing period, and the banker offered them a nominal interest rate of 6 percent. As it turns out, the inflation was 5 percent over the term of the loan. a. What was the expected real interest rate? b. What was the actual real interest rate? c. Who benefited and who lost because of the unexpected inflation?arrow_forwardConsider an economy where: The real rate of interest is 4.13% and the nomial rate of interest is 6.11%, calculate the anticipated rate of inflationarrow_forwardSuppose the economy’s nominal GDP constantly grows at 9%, and real GDP constantly grows at 4%What is the inflation rate? How long does it take for an item that costs $1 today to cost $4?arrow_forward
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