BAM 223 Assignment 4

Suppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%. If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why? If the inflation rate turns out to be 3% rather than 2%, who will be helped? Why?

This kind of inflation is called (cost-push, demand-pull) inflation. Inflation of this type is accompanied by (a decrease, an increase) in aggregate output.

3) Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both agree that the real interest rate charged on the loan should be 10% and the loan is going to be totally paid ($20,000 plus interest), in a one-time payment, on December 31, 2020. Suppose the two parties to this transaction can perfectly foresee what the inflation rate for this period is going to be. Given this information, what is the nominal rate the Bank has to charge on this loan? Assume that the CPI is computed at the beginning of each year.

Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent. Indicate whether this unexpected higher rate of inflation would help or hurt each of the following groups. a homeowner with a fixed-rate mortgage. a union worker with a fixed labor contract a company that has invested some of its endowment in government bond which pay fixed rate of return.

50) You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate? A) 28.00 percent. B) 36.25 percent. C) 43.75 percent. D) 67.50 percent.

If my nominal wages go up 5% this year and inflation is 2% this year, what happened? a) All of the choices are correct.  b) I experience an increase in my both my nominal income and in my real income. c) My nominal wages increased more than the increase in the overall price level.  d) My real wages increased by approximately 3%

Jim holds $50,000 in money at the beginning of the year. The annual inflation rate is 2 percent, and the price level rises from 1.0 to 1.02. What is the "inflation tax" that Jim pays at the end of the year? Jim pays an inflation tax of $

Note: the answer should be typed.

a)Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both agree that the real interest rate charged on the loan should be 10% and the loan is going to be totally paid ($20,000 plus interest), in a one-time payment, on December 31, 2020. Suppose the two parties to this transaction can perfectly foresee what the inflation rate for this period is going to be.  b) Assume the same conditions exist as in the paragraph a but now the bank and the borrower cannot predict the inflation rate perfectly. Assume that both the bank and the borrower expect an inflation rate of 8% over this period of time. Given this information, what is the nominal rate charged on the loan now? Given the actual inflation rate (from your calculations and the provided data), who wins from this loan contract and who loses from this loan contract? Explain your answer fully. What if the expected inflation rate is 4% during this period? Does your answer change as to who wins and…

Naked Economics: Undressing the Dismal Science Book by Charles Wheelan   Please refer to the chapter titled, "The Federal Reserve," in the Naked Economics book to answer this question. Which of the below statements IS NOT CORRECT about the term "inflation" or its effect,  as Charles Wheelan explains the term in this chapter? 1) Inflation favors retired people with fixed incomes and increases the purchasing power of their income.   2) Inflation redistributes wealth arbitrarily, as unexpected bouts of inflation are good for debtors and bad for lenders.    3) Massive inflation (or, hyperinflation) distorts the economy, as workers rush to spend their cash before it becomes worthless.    4) The most instructive way to think about inflation is not that prices are going up, but rather that the purchasing power of the dollar is going down.

Suppose that people expect inflation to equal 5 percent, but in fact, prices rise by 7 percent. Which of the following groups or individuals are hurt by this unexpectedly high inflation rate? Check all that apply.   The government   A union worker in the second year of a labor contract   A homeowner with a fixed-rate mortgage   A college that has invested some of its endowment in government bonds that are not indexed Treasury bonds

Use the information in the table to calculate the %change in prices (inflation rate), using a chain-weighted methodology. Q1=2 Q2=3 Year (t) P1 E1 P2 E2 E(t) 2017 $1.05 $2.00 2018 $1.10 $2.10 2019 $1.10 $2.15 2020 $1.15 $2.15 Price Index Inflation Rate 2017 2018 2019 2020 Question 1: What is the inflation rate for 2019? a) 1.76% b) 1.16% c) -0.60% d) -3.02

Inflation is defined as increases in the average prices in the economy. The February 2022 inflation rate is 7.9% which is the highest in the last 40 years. Have you noticed the price increases in your daily life? What goods are increased by the most? and by how much? What do you think are the causes of the recent inflation? How do you cope with the inflation?

Suppose you borrow $100 from a bank at 5 percent interest for 1 year and the inflation rate that year is 10 percent. Was this loan advantageous to you or the bank?

in a borrowing agreement, who wins and loses when inflation is unexpectedly low? Explain how unexpectdly low inflation creates a transfer of purchasing power when money is borrowed and lent.

Suppose that Lisa lends Alex $1,000, which Alex must repay after one year with an interest payment of 10%. When Lisa lends money to Alex, she expects that the inflation rate over the year will be 3%. However, after she lends the money, the actual inflation rate for the year turns out to be 5%. In this scenario, who gains from the higher than expected inflation rate?

Distinguish between the general inflation rate and the average inflation rate for specific goods?

Suppose banks require a real interest rate of 10 percent. If they expect inflation to be 2 percent, what is the nominal interest rate?   Multiple Choice   5 percent   20 percent   8 percent   12 percent

Suppose you have $150,000 in a bank term account. You earn 5% interest per annum from this account.    You anticipate that the inflation rate will be 3% during the year. However,    the actual inflation rate for the year is 6%.    Calculate the impact of inflation on the bank term deposit you have. ii.    Examine the effects of inflation in your city of residence with attention to food and accommodation expenses. iii.    The Australian Bureau of Statistics (ABS) reported in May 2016 that the    civilian population in Australia over 15 years of age was 19.8 million.    Of this population of 19.8 million Australians, 12.5 million were    employed and 0.7 million were unemployed.    Calculate Australia’s labor force and the number of people in the civilian    population who were not in the labor force?

QUESTION 6 What is inflation? Briefly discuss the  various Fiscal and  monetary policies that are generally adopted to curb inflation.