Exploring Macroeconomics
8th Edition
ISBN: 9781544363332
Author: Robert L. Sexton
Publisher: Sage Publications
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Chapter 10, Problem 14P
To determine
To find:
Whether there is a redistribution of income and whether there is any gain or loss from it and the effect, if it is assumed that the inflation rate will slow down.
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Suppose you take out a loan for school this year for $4500. The bank expects that the rate of inflation for next year will equal 2%. You and the bank agree that in one year's time, you will pay back the full amount at an interest rate of 6%. Next year though, there is a sudden rise in inflation, causing inflation to equals 7%. How much will you pay back in one year?
Give an example of a good or service that has increased in price since the time when you were young. Describe the good or service and tell us what price the good cost when you were young compared to today. Calculate the percentage change in price (the inflation rate for the good in question) over the time period you are describing.
How do higher gasoline prices contribute to inflation?
Chapter 10 Solutions
Exploring Macroeconomics
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Similar questions
- Does reducing purchasing power of a consumer decrease inflation in the economy?arrow_forwardHyperinflation has struck your country! The economy is experiencing 1.41% inflation every minute. Your boss has just paid you $710 for your work that day, and you need to spend it fast before it loses its value. It takes you 24 minutes to get to the store, pick your items, and go to the register. Adjust the $710 for the inflation that has occurred over the 24 minutes to find your real wage for the day at the time you were paid. Hint #1: If there was 5% inflation, and I wanted to adjust $100 to its value before the inflation occurred, I would divide by 1.05. Hint #2: The growth formula is (1 + i)^t Do not round until your final answer, at which point you may round to two decimal places.arrow_forwardFind a product that you normally buy. Calculate the inflation adjusted price it should be now based on the original price for 1995 and see what the current price is compared to the calculated price. Has inflation affected the current price or have some other factors affected the price more? How does the affect the economy?arrow_forward
- How might a rapid rise in inflation harm you? How might a rapid rise in inflation help you? In answering this question consider your role as both a consumer, worker, and borrower. Consider the likely effect on your real wages, and any interest you receive as a saver. Would it be advantageous to borrow money if you expected inflation to rise? Does it make economic sense to open a savings account at a bank given the latest increase in the CPI.arrow_forwardsuggest ways on how you can contribute to reduce the effect of inflationarrow_forwardwhat impact does inflation have on the value of business ?arrow_forward
- Inflation does not reduce the purchasing power of most workers.arrow_forwardHow does inflation affect the prices you pay for goods and services?arrow_forwardSuppose you borrow $100 from a bank at 5 percent interest for 1 year and the inflation rate that year is 10 percent. Was this loan advantageous to you or the bank?arrow_forward
- Suppose your earn 3% wage from your employer. Then, the government releases economic data indicating the inflation rate is running at 5%. Are you better off? Based upon changes in your real wages, did your standard of living improve ?arrow_forwardSuppose you borrow $1,000 from a bank at a fixed rate of interest (5%) for one year to finance your college education. Explain the redistribution of income that occurs if the rate of inflation that year is 7%. Was this loan advantageous to you or the bank?arrow_forwardSuppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected.Is the real interest rate on this loan higher or lower than expected?Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain or lose?Inflation during the 1970s was much higher than most people had expected when the decade began. How did this affect homeowners who obtained fixed-rate mortgages during the 1960s? How did it affect the banks that lent the money?arrow_forward
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