The student has 30000 rubles and decides to save them or spend. If he puts money in the bank, in a year he will get 33600 rubles. Inflation is 14% per year. a) What is the nominal interest rate? b) What is the real interest rate? c) What would you advise the student? d) How would your advice change if the inflation rate drops to 7%, at a constant rate of interest?

The student has 30000 rubles and decides to save them or spend. If he puts money in the bank, in a year he will get 33600 rubles. Inflation is 14% per year. a) What is the nominal interest rate? b) What is the real interest rate? c) What would you advise the student? d) How would your advice change if the inflation rate drops to 7%, at a constant rate of interest?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 33P: The index number representing the price level changes from 110 to 115 in one year and then from 115...

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.
With in 1 or 2 percentage points, what has the U.S. inflation rate been during the last 20 years? Draw a graph to show the data.
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?
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.
Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?
What is the inflation rate in 2019? Has it increased or decreased since 2018 and by how much? If the nominal interest rate in 2019 is 7%, what would be the change in purchasing power of $1,000 deposited in January 219 by the end of the year?
When Mike took out his first two-year membership with a pool in 2012, the fee was $600. He renewed his membership three times; in 2014 for $640, in 2016, for $670, and again in 2018, for $735. What is the overall rate of inflation for Mike’s pool membership?
a) Find the inflation rate in 2010, if the 2009 is the base year? b) Find the increase in the cost of living between 2010 and 2011?
Dean borrows $400 from Tim. Tim wants to make a 7% real return on his money, so they both agree on a 7% stated interest rate paid next year. Dean and Tim did not anticipate any inflation, yet the actual inflation turned out to be 2% next year. In this case, what is Tim’s real rate of return?
An economist has predicted 2% inflation during the next 10 years. How much will an item that presently sells for $100 cost in 10 years?
The average annual cost(tuition, fees, and room and board) at four-year private universities rose from $6,070in 1980 to $29,257 in 2004. Calculate the percentage rise in cost from 1980 to2004, and compare it to the overall rate of inflation as measured by the Consumer Price Index. The Consumer Price Index for 1980 is82.6and the Consumer Price index for 2004 is 188.9.The percentage rise in cost from 1980 to 2004 is %??(Round to the nearest tenth as needed.)
Ek 3 UK’s inflation has hit a 40 year high (CPI is 9.1% in June 2022). Evaluate the use of interest rate changes as a means of controlling UK inflation.