Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 22, Problem 2.5P
To determine
Identifying best situation suited to borrower and lender.
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Students have asked these similar questions
Choose one or more:
A. Next year, the average monthly Social Security payment will be almost $1,800.
B. The cost-of-living adjustment for 2020 is more than what it was in 2019.
C. According to advocates for seniors, the 2020 COLA is not enough to compensate for rising healthcare costs.
D. Elizabeth Warren has proposed using a new inflation measure that outpaces the current one used.
E. The former program trustee argues that the current inflation measure overcompensates seniors since it
ignores the substitution effect.
Which of the following statements about inflation is true?
A.
Inflation is not a problem because it is just another way for the government to collect
revenue—an
alternative to the income tax or the sales tax.
B.
Inflation is a tax on holding money.
C.
Inflation occurs when real GDP grows more rapidly than the quantity of money.
D.
Inflation is a tax on spending money.
Assuming the nominal interest rate is positive, ceteris paribus, which of the following statements is correct?
a.
If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent.
b.
When the inflation rate is positive, ceteris paribus, the real interest rate will be less than the nominal interest rate.
c.
When the inflation rate is zero, ceteris paribus, the nominal interest rate will be less than the real interest rate.
d.
If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is -3 percent.
Chapter 22 Solutions
Principles of Economics (12th Edition)
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- 1) Whether you gain or lose during a period of inflation depends on: a) how the price increases affect government purchases of goods. b) whether the economy is expanding or contracting. c) whether you save or not. d) whether your income rises faster or slower than prices of the things you buy. 2) A real wage that does not keep pace with inflation implies: a) a decrease in purchasing power. b) a decrease in nominal wages. c) a decrease in nominal wages after inflation. d) an increase in the inflation adjusted real wage.arrow_forwardUnder which of the following conditions would you prefer to be the borrower? a. The nominal rate of interest is 20% and the inflation rate is 25%. b. The nominal rate of interest is 15% and the inflation rate is 14%. c. The nominal rate of interest is 12% and the inflation rate is 9%. d. The nominal rate of interest is 5% and the inflation rate is 1%.arrow_forwardWhich of these is not a negative effect of inflation? a. It lowers down the value of money b. It rises the level of employment c. It increases the price of goods and services d. It lowers down the purchasing power of peoplearrow_forward
- 4. If the nominal interest rate is fixed over the life of a loan, the consequences of inflation being higher than expected are that A. the real interest rate will be higher than expected, and the lender will benefit. B. the real interest rate will be lower than expected, and the lender will benefit. C. the real interest rate will be lower than expected, and the borrower will benefit. D. the real interest rate will be higher than expected, and the borrower will benefit. E. the real interest rate will remain unchanged over the life of the loan, and the lender will benefit at the expense of the borrower. 5. Under what circumstance would the nominal interest rate be positíve but the real interest rate be negative? A. Expected inflation is negative. B. Expected inflation is zero. C. Expected inflation is exactly equal to the nominal interest rate. D. Expected inflation is greater than the nominal interest rate.arrow_forwarda government is facing high inflation, then it will take an action as following: I. increase taxes, increase discount rate II. decrease taxes, decrease discount rate III. increase taxes, decrease discount rate IV. decrease taxes, increase discount ratearrow_forwardIdentify how each of the following individuals is influenced by unexpected inflation. a. A sales representative paid a set percentage commission based on the dollar value of her sales is (Click to select) due to unexpected inflation. b. A financial investor who lives off income made from buying and selling mortgaged commercial property is (Click to select) due to unexpected inflation. c. A retiree who lives on interest payments from his bank deposits is (Click to select) due to unexpected inflation. d. A storekeeper whose costs and revenues both rise by inflation is [ (Click to select)) due to unexpected inflation. e. A person who lives off income made buying and selling items on online auction sites is (Click to select) due to unexpected inflation. f. A worker with a union contract that incorporates partial indexation of her wage i ✓ (Click to select) due to unexpected inflation. unaffected better off worse offarrow_forward
- 1. Identify four important strategies which consumers can adopt to deal with inflation. Evaluate the effectiveness of each strategy. 2. What are the benefits of producing and using local goods and services. 3. Identify strategies that can be implemented by a consumer to maintain his or her standard of living after retrenchment.arrow_forwardIn which situation is the real interest rate highest? In which situation is the real interest rate highest? A. The nominal interest rate is 25% and the inflation rate 30%. B. The nominal interest rate is 2% and the inflation rate 1%. C. The nominal interest rate is 8% and the inflation rate 5%. D. The nominal interest rate is 11% and the inflation rate 9%.arrow_forwardYou put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest? a. 3 percent b. 3.75 percent c. 5 percent d. 6 percentarrow_forward
- If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is 3%. Select one: a. False b. True Clear my choicearrow_forward37. What type of inflation is caused by an increase in the purchasing power of people? a.Cost push b.Chronic c.Built in d.Demand pullarrow_forwardIn the United States, the Federal Reserve has A. the same arrangement as the Bank of Canada has with the Canadian government. B. an inflation target, which has been in place since 1991. C. no goals. D. an inflation target of 2% mandated by Congress. E. a dual mandate. The real interest rate is approximately equal to A. the growth in real GDP. B. the nominal interest rate plus the inflation rate. C. the nominal interest rate minus the inflation rate. D. the nominal interest rate. E. one divided by the nominal interest rate minus the inflation rate.arrow_forward
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