Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 12, Problem 6QQ
To determine
The severity of great depression.
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1. a. Assume the nominal interest rate is 12 percent and the expected rate of inflation is 8 percent. Calculate real rate of interest.b. Now assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 2 percent. Calculate the real rate of interest.c. Assume the expected rate of inflation is 6 percent per year. What nominal interest rate should you charge to receive a real interest rate of 2 percent per year?
a. If the economy is currently at full employment, at what level should the central bank set the nominal interest rate?
b. At what level should the central bank set the nominal interest rate if the economy is 20% below potential GDP?
c. Explain the difference between the nominal interest rate and the real interest rate. Using these concepts of the nominal interest rate and the real interest rate explain how lenders can protect themselves from any negative effects of inflation if the inflation is fully anticipated.
Answer it correctly please.Explain your answer. I will rate accordingly. My last attempt, Do it fast and explain.
If borrowers and lenders expect 2% inflation for the next 5 years, and they make lending arrangements based upon those expectations, but the actual inflation rate turns out to be 8%, then
A) borrowers gain and lenders lose.
B) borrowers gain and lenders gain.
C) borrowers lose and lenders lose.
D) borrowers lose and lenders gain.
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