Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 24, Problem 5QR
To determine
Real and nominal interest rate and its relation.
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In an economy the nominal interest rate is 6% and the inflation is 4%. Calculate real interest rate.
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Chapter 24 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Economics Do you agree that there is no difference between the nominal interest rate and the real interest rate? Explain why or why not.arrow_forwardPut the following terms into a meaningful equation and then explain in words why this relationship is important to your everyday life: a. Real Interest Rate (r) b. Inflation (π) c. Nominal Interest Rate (i)arrow_forwardWhat is the nominal interest rate?arrow_forward
- The Nominal Interest rate and inflation rate in an economy is same. What will be the real interest in such case?arrow_forwardSuppose you make a loan of $100 that will be repaid to you in 1 year.if the loan is denominated in terms of nominal interest rate, are you happy or sad if inflation is higher than expected during the year. What if the loan instead had been denominated in terms of a real return.arrow_forwardFrank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a 2 percent real return per year. Instructions: Enter your responses as as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 110 in one year and 121 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be %. b. Suppose Frank and Sarah are unsure what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 2 percent real rate of return. Frank should charge Sarah) % (Click to select) the inflation rate.arrow_forward
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