Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 29, Problem 5QP
To determine
Identify the difference between the real interest rate and the nominal interest rate.
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The Nominal Interest rate and inflation rate in an economy is same.
What will be the real interest in such case?
If you are a banker, should you consider the nominal or real interest rate when deciding which rate to charge for a loan? Explain in 250 words.
True or false?
The nominal rate of interest is the difference between the real rate and the expected rate of inflation.
Chapter 29 Solutions
Economics (MindTap Course List)
Ch. 29.1 - Prob. 1STCh. 29.1 - Prob. 2STCh. 29.1 - Prob. 3STCh. 29.1 - Prob. 4STCh. 29.2 - Prob. 1STCh. 29.2 - Prob. 2STCh. 29.2 - Prob. 3STCh. 29.4 - Prob. 1STCh. 29.4 - Prob. 2STCh. 29.4 - Prob. 3ST
Ch. 29.4 - Prob. 4STCh. 29 - Prob. 1QPCh. 29 - Prob. 2QPCh. 29 - Prob. 3QPCh. 29 - Prob. 4QPCh. 29 - Prob. 5QPCh. 29 - Prob. 6QPCh. 29 - Prob. 7QPCh. 29 - Prob. 8QPCh. 29 - Prob. 9QPCh. 29 - Prob. 10QPCh. 29 - Prob. 11QPCh. 29 - Prob. 12QPCh. 29 - Prob. 13QPCh. 29 - Prob. 14QPCh. 29 - Prob. 15QPCh. 29 - Prob. 16QPCh. 29 - Prob. 17QPCh. 29 - Prob. 1WNGCh. 29 - Prob. 2WNGCh. 29 - Prob. 3WNG
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- What is the difference between real and nominal interest rates? why is the distinction important? What factors change interestrates?arrow_forwardIs the Market interest rate commonly known as the nominal interest rate? Why?arrow_forwardDo you think a negative nominal interest rate can happen? What about a negative real interest rate? Explain.arrow_forward
- Suppose consumer confidence falls. What happens to the nominal interest rate and income?arrow_forwardProduction and Growth Describe the difference between nominal interest rate and real interest rate?arrow_forwardSuppose the nominal interest rate is 0.64 and the expected inflation rate is 0.47 1) What is the exact real interest rate? 2) What is the approximate real interest rate?arrow_forward
- Tamika is lending Juan $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they both expect it to be 1.68 in one year. If Tamika and Juan agree that Tamika should earn a 3 percent real return for the year, the nominal interest rate on this loan should be percent.arrow_forwardGrant agreed to lend Kay $1,000 for one year at a nominal rate of interest of 5%. At the end of the year prices have actually risen by 7%. Who loses and who gains? Why? What is the real interest rate?arrow_forwardWhy is it important that the rate at which we earn interest should be higher than the inflation ratearrow_forward
- Suppose 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_forwardSamantha is lending Jack $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they both expect it to be 1.68 in one year. If Samantha and Jack agree that Samantha should earn a 3% real return for the year, the nominal interest rate on this loan should be ______ percent.arrow_forwardAssume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $117 at the end of the year. If inflation over that one year is 8%, what real rate of interest does Sarah earn on her $100?arrow_forward
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