Suppose that the nominal interest rate is 8% and that the expected rate of inflation is 9%. A)Calculate the real interest rate. Provide an economic interpretation. B)Is the real interest rate a better measure of the cost of a loan than is the nominal interest rate? Why or why not?

Q: Under U.S. tax law that allows taxpayers to deduct interest expense, an increase in inflation…

A: Fisher's equation R = I - πe R =real interest rate I =Nominal Interest rate Πe =Expected inflation…

Q: After experiencing the new equilibrium inflation rate and its effect on their real wage, workers…

A: Inflation expectations are essentially the rate at which individuals—customers, organizations,…

Q: Assume the nominal interest rate is 17 percent and the expected rate of inflation is 12 percent.…

A: The real interest rate refers to the inflation adjusted interested rate. It can be calculated by…

Q: True or false? The nominal rate of interest is the difference between the real rate and the…

A: Nominal interest rate is the interest rate which is stated in loan agreement . It is the rate of…

Q: If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real…

A: Nominal interest rate is the current rate of interest.Real interest rate is the change in interest…

Q: A fall in the amount of inflation, given a fixed nominal interest rate will cause: Group of answer…

A: Answer- Need to find- A fall in the amount of inflation, given a fixed nominal interest rate will…

Q: The nominal interest rate will be less than the real interest rate when   A. the rate of inflation…

A: The correct option is (c).

Q: )Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both…

A: The inflation rate is basically an increase in the price level from one period to another. If the…

Q: A typical consumption basket in Canada can be purchased for the following prices in two years: in…

A: Inflation refers to the increase in general price levels in an economy from one period to another.…

Q: The expected real rate of interest is 0.6%, actual inflation over the last year was 3%, and expected…

A: A real interest rate is one that has been adjusted for inflation, reflecting the real cost of funds…

Q: true/false, explain There are an infinite number of combinations of real interest rates and…

A: True

Q: Suppose that the nominal rate of interest is 7% and the expected inflation rate is 3%. According to…

A: Fishers’ equation considers that the money supply and the price level lies equal and proportional to…

Q: The relationship between nominal and real interest rates continues to hold when there is deflation…

A: In an economy, the difference between actual and expect interest rate will lead to affect the…

Q: In which situation would you rather be a borrower? the nominal interest rate is 10%, the inflation…

A: The inflation in an economy is defined as the average rise in the level of prices in the economy.…

Q: Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that…

A: Real interest rate is interest rate adjusted for inflation.

Q: If the inflation rate is 2 percent and the real interest rate is 4 percent, the nominal interest…

A: In an economy, inflation and different types of interest rate such that real and nominal interest…

Q: Nelson, a management trainee at a large New York-based bank, is trying to estimate the real rate of…

A: Real interest rate = Nominal yield - Inflation rate, where Inflation rate = % Change in CPI

Q: Behavioral economists have discovered that people view a 2% decrease in their income without…

A: Inflation can be defined as a rise in the price of goods and services over time in a given country.…

Q: Suppose banks require a real interest rate of 12 percent. If they expect inflation to be 3 percent,…

A: A real interest rate is the one which is adjusted for the inflation whereas nominal interest rate…

Q: You are given the following information about the economy: the nominal interest rate = 10 percent,…

A: Given information: The nominal interest rate is 10% The real rate of interest is 3%

Q: Which of the following would cause the real interest rate to be negative? a.When the nominal…

A: The Fisher calculation forecasts that the nominal rate would equivalent the equilibrium real rate…

Q: Suppose individuals expected inflation in a given year to be around 3%, but it actually ended up…

A: Inflation is described as an increase in the price of most everyday or common goods and services,…

Q: Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then…

A: The real interest rate on this loan will be lower because if the inflation is more than expected…

Q: Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and…

A: The real interest rate is the rate which we get after deducting the rate of inflation from the…

Q: Interest rates can be expressed in real or nominal terms. Which of the following is most correct?…

A: Inflation refers to a rise in the general prices of goods and services.

Q: An increase in the expected inflation rate increases   the real rate of interest   the nominal rate…

A: Nominal interest rate refers to the interest rate which is paid in nominal terms on principal.

Q: Suppose I lend my friend Peter $100 for one year, and he agrees to repay me with interest. We each…

A: The real rate of return is the Nominal rate of return adjusted for the Inflation rate.

Q: Ek 3 UK’s inflation has hit a 40 year high (CPI is 9.1% in June 2022). Evaluate the use of interest…

A: A widespread increase in the prices of goods and services in an economy indicates inflation, which…

Q: Assume the economy is experiencing low and stable inflation, averaging 2% a year. Nadia loans her…

A: Nominal interest rate = real interest rate + Expected inflation rate 5 % = real rate + 2 % Real rate…

Q: When lenders begin to expect higher levels of future inflation,   a. Nominal interest rates today…

A: The inflationary expectations play a major role in setting the nominal interest rate and real…

Q: Given a nominal interest rate of 5 percent, in which of the following cases would you earn the…

A: Nominal interest rate: A nominal interest rate refers to the estimation of interest rate without…

Q: Which of the following is true about inflation? a. Inflation affects everyone negatively b.…

A: Inflation is defined as the rise in the average price level of commodities and services in the…

Q: If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real…

A: Inflation rate measures the rise in the general price level in an economy. The opposite of inflation…

Q: Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. a. What is…

A: Given Inflation premium = 2 % Nominal interest rate= 1 %

Q: If the expected inflation rate is 4 percent and the nominal interest rate is 9 percent, then the ex…

A: According to the Fisher Equation: The real interest rate is an inflation-adjusted nominal interest…

Q: f the nominal interest rate is 10% and the inflation rate is 5%. What is the real interest rate? (Do…

A: The real interest rate is the rate of interest an investor, saver or lender receives after allowing…

Q: A rise in the amount of inflation, given a fixed nominal interest rate will cause:     A.  The…

A: We know that  Nominal interest rate = real interest rate + inflation rate  i = r+π where r is the…

Q: Assuming the nominal interest rate is positive, ceteris paribus, which of the following statements…

A: We know: Real Interest Rate = Nominal Interest Rate - Inflation This means how much are we earning…

Q: Consider an economy in which the nominal interest rate exceeds the real interest rate by 2…

A: The Fisher equation is an economics concept used to link the real interest rate, with the nominal…

Q: Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent.…

A: Inflation rate refers to rise in average price levels of goods and services produced in an economy…