Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 9, Problem 5CQ
To determine
Identify the current interest rate on ten-year government bonds.
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What is the difference between real and nominal interest rates?
why is the distinction important? What factors change interestrates?
What might cause interest rates to be low one year and high the
next?
Discuss the relationship between nominal and effective interest rates?
Chapter 9 Solutions
Economics: Private and Public Choice (MindTap Course List)
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- Describe how interest could be good or bad, depending on the situation, and explain why interest rates are currently so low?arrow_forwardIf 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.arrow_forward"The rate of return to bonds should be near equal to the equilibrium interest rate in the credit market." True or False?arrow_forward
- Which situation leads to the distinction between nominal and effective interest?arrow_forwardSeveral factors may influence interest rates for individual securities in an economy like the United Kingdom. One such factor is inflation. Explain fully how the factor may influence interest rates of individual securities in an economy.arrow_forwardDo the interest rates reflect the market interest rate?arrow_forward
- What does this mean? "When drawn against the real interest rate, output supply increases if the labor supply is increasing in the interest rate."arrow_forwardDraw a graph of a typical Real and Nominal Interest Rates (Three-Month TreasuryBills), and discuss why it usually takes that change.arrow_forwardthe equilibrium real interest rate in some country is quite low. What could be three possible explanations for this situation?arrow_forward
- Will real wages start rising? If they don’t, should the central banks be raising the interest rate? Explain why.arrow_forwardWhich would be a better way for government to protect its investors from inflation: offer a bond linked to changes in the CPI, or a bond guaranteed to pay its principal in a fixed amount of gold bullion?arrow_forwardWhat role do interest rates play in consumer spending and savings, and how do central banks use interest rate adjustments to influence economic activity?arrow_forward
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