12) If the nominal rate of interest is 2 percent, anpercent, the real rate of interest isA) 2 percent.B) minus 10 percent.C) 14 percent.D) 12 percent.his sed vithe expected inflation rate is minus 1212) If the nominal rate of interest is 4 percent, and the expected inflation rate is 2 per cent, thereal rate of interest isA) 100 percentB) minus 2 percentC) 2 percentD) 8 percent

The inflation rate is the rate of increase in the prices of products and services manufactured in an…

12) If the nominal rate of interest is 2 percent, and the expected inflation rate is minus 12 percent, the real rate of interest is A) 2 percent. B) minus 10 percent. C) 14 percent. D) 12 percent. hiss ed via 12) If the nominal rate of interest is 4 percent, and the expected inflation rate is 2 per cent, the real rate of interest is | A) 100 percent B) minus 2 percent C) 2 percent D) 8 percent

12) If the nominal rate of interest is 2 percent, and the expected inflation rate is minus 12 percent, the real rate of interest is A) 2 percent. B) minus 10 percent. C) 14 percent. D) 12 percent. hiss ed via 12) If the nominal rate of interest is 4 percent, and the expected inflation rate is 2 per cent, the real rate of interest is | A) 100 percent B) minus 2 percent C) 2 percent D) 8 percent

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.
A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3, what would likely happen to a homeowner with an adjustable-rate mortgage?
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of 20,000. However, if the inflation rate is 6 per year, how much buying power will that 20,000 have when measured in todays dollars? Hint: Start by calculating the rise in the price level over the 16 years.
Interest, inflation, and purchasing power Suppose Diamond is a fashionista and buys only denim jackets. Diamond deposits $4,000 into a savings account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a price of $20.00. Initially, Diamond's $4,000 deposit has a purchasing power of #________ denim jackets. For each of the annual inflation rates given in the following table, first determine the new price of a denim jacket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Diamond's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest denim jacket. For example, if you find that the deposit will cover 20.7 denim jackets, you…
u are considering the choice between investing $50,000 in a conventional 1-year bank CD offering an interest rate of 5% and a 1-year Inflation-Plus CD offering 1.5% per year plus the rate of inflation. Which is the safer investment? Can you tell which offers the higher expected return? If you expect the rate of inflation to be 3% over the next year, which is the better investment? Why? If we observe a risk-free nominal interest rate of 5% per year and a risk-free real rate of 1.5% on inflation-indexed bonds, can we infer that the market's expected rate of inflation is 3.5% per year？
Suppose Cho is a cinephile and buys only movie tickets. Cho deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. Initially, the purchasing power of Cho's $3,000 deposit is 200 movie tickets. When the rate of inflation is equal to the interest rate on Cho's deposit, the purchasing power of her deposit __________over the course of the year. Select one of the following: A. Rises B. Remains the Same C. Falls
Supposethat on January 1 2009, the TL price of thedollar is 1.40 overtheyear, inflation rate in Turkey is 25 % and U.S. inflation rate is 10%. Iftheexchange rate is $1= 1.50 TL at theend of theyear, whichcurrencyappearto be overvalued.?Explain your answer.
A. Find the real value of your 40,000 salary for each of the next three year's. year1? year2? year3? b. If you have a cola in your contract, and the inflation rate is 5 percent, what is the real value of your salary for each year? year1? year2? year3?
3. An investor wants to be able to buy 4% more goods and services in the future in order to induce her to invest today. During the investment period prices are expected to rise by 2%. Which statement(s) below is/are true? 1. 4% is the desired real rate of interestII. 6% is the approximate nominal rate of interest requiredIII. 2% is the expected inflation rate over the periodA. I onlyB. II onlyC. III onlyD. I and II onlyE. I, II, and III are true
Suppose that at the start of 1999, Ari invests their money in a savings account earning 3.6% interest. If inflation is 1% during 1999, calculate the real interest rate on Ari’s savings account by the end of 1999. Has the inflation-adjusted value of Ari’s savings increased or decreased?