Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Chapter 14, Problem 3RQ
To determine
Define deflation and problems deflation pose for the macroeconomy.
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Suppose both nominal GDP rises by 10 percent and real GDP rise by 2percent. What has happened to the general price level? What is the inflationrate? Show your calculation.
Research suggests that macroeconomic factors can explain the dynamics of interest rates in the economy.
Suppose we are interested in understanding whether inflation plays a role in explaining interest rates. Fitting a
line between the current nominal interest rate i and current inflation we obtain:
i = 0.041 -0.147
What is the expected level of interest rates when inflation is at the level of 4%?
is deflation worse than inflation and what has been the European Central Bank (ECB) doing to get rid of deflation?
please answer briefly
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- Explain what happens to the economy if there is a temporary consumption boom that lasts for one period and the central banks keeps the nominal interest rate unchangedarrow_forwardHarare Zimbabwe's central bank today raised its key intrest rate from 50 percent to 70 percent. The governor of the Reserve Bank of Zimbabwe said the higher rate was inteded to slow consumer spedning, increase foreign buying of Zimbabwe dollars, and slow the rate of inflation, currently running at approximately 200 percent a year. According to the World View after the key intrest rate was raised what was, a) the nominal intrest rate? b) the real intrest rate?"arrow_forwardShould the US be more concerned about deflationary pressure or inflationary pressure at this time? Are there strong indicators of deflation given the state of the automobile market and housing market?arrow_forward
- What is the diference between a real interest rate and a nominal interest rate?What is the intuition behind the Fisher equation?arrow_forwardExplain macro economicsarrow_forwardSuppose individuals expected inflation in a given year to be around 3%, but it actually ended up being 10%. Given this information, we can assume that _____ benefited from this fact, since the real interest rate was _____ than the equilibrium rate borrowers or lenders?arrow_forward
- If inflation rises from 10 to 14 percent, explain what happens to real andnominal interest rates according to the Fisher effect? Could you provide an answer for both real and nominal aspect?arrow_forwardAssume that the nominal interest rate is 8% in 2020, with inflation at 3%. a. According to the Fisher effect, what will happen to the nominal interest rate if inflation goes to 8%? b. If someone borrowed $1 million in 2020 at 8% (promising to pay $1,080,000 in one year) and paid back the loan one year later when inflation had unexpectedly gone to 8%, what would be the real interest rate on this loan?arrow_forwardBelow is a graphical model of the AS-AD. In this model the initial level of the economy is at the low output and low inflation. Describe what happens to the economy when the BSP decides to lower interest rate and most likely this will lead to an increase in money supply thereafter. Price Level AS P1 P AD1 AD Y Y1 National income (real GDP) Copyright: www.economicsonline.co.uk Answer the following guide questions. Based on the graph above.. a.What happens to the aggregate demand? Describe your answer. b.What happens to the level of output? Describe your answer. c.What happens to the price level? Describe your answer. d. State your conclusion on the effect of the monetary policy made by the BSP.arrow_forward
- If nominal interest rates in America rise but real interestrates fall, predict what will happen to the U.S. dollarexchange rate.arrow_forwardHow does the below effect GDP? Will it shift the IS, LM, and/or PC Curve:'bond routs are growing deeper, junk bond yields are rising. However, monetary policy is being kept stable by the central bank.arrow_forwardGraph how the increase in real interest rates will affect output and price level.arrow_forward
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