Q. 18 Dave deposits $2000 into the bank as deposits in 2016. The bank promises him a nominal interest rate of 5% from 2016 to 2017. The basket of goods that David likes is 2 can of Coca-Cola and 5 hamburgers in both 2016 and 2017. What is the real interest rate that David gets based on the information provided in this question? Each can of Coca-Cola Each Hamburger Price in 2016 $5 $20 Price in 2017 $5 $25 +14.4% -22.73% +5% A) -5% - 14.4%

Q. 18 Dave deposits $2000 into the bank as deposits in 2016. The bank promises him a nominal interest rate of 5% from 2016 to 2017. The basket of goods that David likes is 2 can of Coca-Cola and 5 hamburgers in both 2016 and 2017. What is the real interest rate that David gets based on the information provided in this question? Each can of Coca-Cola Each Hamburger Price in 2016 $5 $20 Price in 2017 $5 $25 +14.4% -22.73% +5% A) -5% - 14.4%

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter19: The Macroeconomic Perspective

Section: Chapter Questions

Problem 29P: The prime interest rate is the rate that banks charge their best customers. Based on the nominal...

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The prime interest rate is the rate that banks charge their best customers. Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years would it have been best to be a lender? Based on the nominal interest rates and inflation rates in Table 19.10, in which of the years given would it have been best to be a borrower?
Harper is a short-lived human who only lives for two years: current year and next year. In the current year, Harper has an income of $189 and has to pay $36 in taxes. Harper expects that he can receive an income of $132 and has to pay $27 in taxes next year before he dies. The real interest rate between current and next year is 7%. What is Harper's lifetime wealth (in $)? Round your answer to at least 2 decimal places
2. In a two-period model, Jennifer expects to earn income of £15,000 in the second period but nothing in the current period; whereas Martin has income of £15,000 in the current period (everything adjusted for inflation). The real interest rate for both borrowing and lending is 30%. a) What is the present value of Jennifer’s future income? b) Show diagrammatically why Martin is better off than Jennifer. c) Show diagrammatically the impact of a fall in the interest rate for both Martin and Jennifer. Is it possible for a fall in interest rates to make Jennifer better off than Martin? d) Comment briefly on the implication of your answer to part (c) for the effectiveness of monetary policy carried out by changing the central bank interest rate.
You deposit $200 in a savings account on January 1, and the bank pays you interest of $10 at the end of the year. During the year, the average price level rises by 2 percent. What is the real interest rate on your savings account? The real interest rate on your savings account is _______. A. 3 percent a year B. 2 percent a year C. $6 D. 6 percent a year
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