If expected inflation is constant, then when the nominal interest rate increases, the real interest rate increases by more than the change in the nominal interest rate. increases by the change in the nominal interest rate. decreases by the change in the nominal interest rate. decreases by more than the change in the nominal interest rate.

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate increases by more than the change in the nominal interest rate. increases by the change in the nominal interest rate. decreases by the change in the nominal interest rate. decreases by more than the change in the nominal interest rate.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 10SQ

See similar textbooks

Similar questions

assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 1 percent. Calculate the real rate of interest.
After experiencing the new equilibrium inflation rate and its effect on their real wage, workers realize that the equilibrium inflation rate has changed, and their real wage has changed. Suppose that they change their expected inflation rate and accept to lower the growth rate of nominal wage by the same amount as the change in the equilibrium inflation rate. What motivates the workers to accept this change in their expected inflation rate?
According to the Fischer equation, if the nominal interest rate is 8% and inflation is running at 4% then the real interest rate is? 12% 8% 4% 2%
Consider an economy in which the nominal interest rate exceeds the real interest rate by 2 percentage points. Find the expected inflation rate.
Which of the following are likely consequences of rising inflation? Check all that apply. Savers wanting to save less and borrowers wanting to borrow more Savers wanting to save more and borrowers wanting to borrow less A misallocation of resources A distorted price-signaling mechanism Suppose the real interest rate (IR) is 3.5% and the inflation rate is 3.5%, and then the nominal or market interest rate is_______ . Crystal considers investing in the green energy industry and compares the following two options: 1. One-year bonds issued by Air Wizard, a producer of wind turbines based in the United States, that pay a nominal interest rate of 7% 2. One-year bonds issued by Sun Waters, a producer of solar water heaters based in Australia, that pay a nominal interest rate of 9.8% A thorough study has shown that the economic situation and prospects in the United States and Australia are very similar. Nevertheless, Crystal decides to…
If the nominal rate of interest is 5 percent for a bond issued by the United States Government and the inflation rate is 2 percent, the real rate of interest is ___. The nominal rate of interest will _______ if the inflation rate rises or increases to 6 percent (that is, the inflation rate increases by 4 percent). A. unknown; rise by 4 percent B. 3 percent; rise by 4 percent C. 3 percent; fall by 4 percent D. 7 percent; fall by 4 percent
Assuming the nominal interest rate is positive, ceteris paribus, which of the following statements is correct? a. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. b. When the inflation rate is positive, ceteris paribus, the real interest rate will be less than the nominal interest rate. c. When the inflation rate is zero, ceteris paribus, the nominal interest rate will be less than the real interest rate. d. If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is -3 percent.