Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 16, Problem 6CQQ
To determine
Calculation of nominal and real interest rate.
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You deposited $2,000 in a savings account,and an year after you have $2,100.Meanwhile the CPI rises from 200 to 204.In this case ,the nominal interest rate is ________percent,and the real rate interest is________percent.
a.1,5
b.3,5
c.5,1
d.5,3
Consider the following basket of student essentials:
2019 2020
Burritos $6.30 $6.60
Pizzas $9.90 $10.00
Movie Tickets $10.00 $10.50
Energy Drinks $4.99 $5.99
a. Using 2019 as the base year, what is the CPI in 2019?
b. Assume students buy 30 burritos, 25 pizzas, 15 movie tickets, and 200 energy drinks each year. What is the CPI in 2020 using 2019 as a base year? What is the inflation rate? Would this rate be higher or lower if students bought more energy drinks?
A low price level induces consumers
to save, which drives down the interest
rate.
9. In 1970, Mr. Sami earned $12,000; in
1980, he earned $24,000; and in 1990,
he earned $36,000. If the CPI was 40 in
1970, 60 in 1980, and 100 in 1990, then
in real terms, Mr. Sami's 's salary was
highest in *
O 1980 and lowest in 1990.
1990 and lowest in 1980.
1980 and lowest in 1970.
1990 and lowest in 1970.
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Chapter 16 Solutions
Essentials of Economics (MindTap Course List)
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- question C,D,E,Farrow_forwardYou deposit $2,000 in a savings account, and a yearlater you have $2,100. Meanwhile, the CPI risesfrom 200 to 204. In this case, the nominal interestrate is _________ percent, and the real interest rateis _________ percent.a. 1; 5b. 3; 5c. 5; 1d. 5; 3arrow_forwardInterest, inflation, and purchasing power Suppose Dalia is a fan of young-adult fiction and buys only young-adult books. Dalia deposits $2,000 into a savings account that pays an annual nominal interest rate of 20%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a young-adult book has a price of $20.00. Initially, Dalia's $2,000 deposit has a purchasing power of #????? young-adult books. For each of the annual inflation rates given in the following table, first determine the new price of a young-adult book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Dalia'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 young-adult book. For example, if you find that the deposit will cover…arrow_forward
- On January 1, 2012, Albert invested $10,000 at 6 percent interest per year for three years. The CPI (times 100) on January 1, 2012, stood at 100. On January 1, 2013, the CPI was 105 on January 1, 2014, it was 110; and on January 1, 2015, the day Albert's investment matured, the CPI was 118. Find the real rate of interest earned by Albert in each of the three years and his total real return over the three-year period. Assume that interest earnings are reinvested each year and themselves earn interest. (Hint Calculate inflation and real interest for each year and then calculate it for the three years as a whole.) Instructions: Enter your responses rounded to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Year 2012 2013 2014 Real rate of interest 1.0 1.0 Total real rate of return; 8 %.arrow_forwardam. 279.arrow_forwardSuppose the CPI is 120 in year 1 and 150 in year 2. If First National Bank charges a nominal interest rate of 30 percent in year 2, what is the bank's real interest rate? Explain.arrow_forward
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- On January 1, 2012, Albert invested $8,000 at 5 percent interest per year for three years. The CPI (times 100) on January 1, 2012, stood at 100. On January 1, 2013, the CPI was 108 on January 1, 2014, it was 115; and on January 1, 2015, the day Albert’s investment matured, the CPI was 117. Find the real rate of interest earned by Albert in each of the three years and his total real return over the three-year period. Assume that interest earnings are reinvested each year and themselves earn interest.Hint: Calculate inflation and real interest for each year and then calculate it for the three years as a whole.Instructions: Enter your responses rounded to one decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Year Real rate of interest 2012 % 2013 % 2014 % Total real rate of return: %.arrow_forwardAssume that Ms. Sawyer's salary is $123,000, up from $120,000 last year, while the CPI is 205.6 this year, up from 187.5 last year. This means that Ms. Sawyer's real income has since last year. increased decreased stayed the same There is not enough information provided to answer this question.arrow_forward1. Seattle’s minimum wage for businesses with 501 employees or more as of January 2022 is $17.27 per hour (i.e., the nominal wage). If the January 2022 CPI is 281.148 according to Bureau of Labor Statistics (BLS), what is the real wage rate in 2022? Group of answer choices a. $6.14 b. $7.25 c. $16.28 d. $17.27 2. According to the circular flow diagram, if you decide to get a job and work (i.e., sell your labor) then you would go to: Group of answer choices a. factor markets b. firms c. goods market d. householdsarrow_forward
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