Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Chapter 15, Problem 3QQ
To determine
The influence of the central bank’s inflation target rate on the nominal interest rate in the dynamic model.
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In theory, inflation not only ______ the value of consumers' money over time, but it also increases the ____ of producers over time.
a.Decreases, wages
b.Increases, interest rates
c.Decreases, unemployment
d.Increases, real GDP
Which of the following are likely consequences of rising inflation? Check all that apply.
Savers wanting to save less and borrowers wanting to borrow more
Savers wanting to save more and borrowers wanting to borrow less
A misallocation of resources
A distorted price-signaling mechanism
Suppose the real interest rate (IR) is 3.5% and the inflation rate is 3.5%, and then the nominal or market interest rate is_______
.
Crystal considers investing in the green energy industry and compares the following two options:
1.
One-year bonds issued by Air Wizard, a producer of wind turbines based in the United States, that pay a nominal interest rate of 7%
2.
One-year bonds issued by Sun Waters, a producer of solar water heaters based in Australia, that pay a nominal interest rate of 9.8%
A thorough study has shown that the economic situation and prospects in the United States and Australia are very similar. Nevertheless, Crystal decides to…
At full employment, the expected inflation rate is
...
A. higher than the inflation rate
B. equal to the inflation rate
C. lower than the inflation rate
D. unknown
E. unrelated to the inflation rate
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- 1) Whether you gain or lose during a period of inflation depends on: a) how the price increases affect government purchases of goods. b) whether the economy is expanding or contracting. c) whether you save or not. d) whether your income rises faster or slower than prices of the things you buy. 2) A real wage that does not keep pace with inflation implies: a) a decrease in purchasing power. b) a decrease in nominal wages. c) a decrease in nominal wages after inflation. d) an increase in the inflation adjusted real wage.arrow_forwardThe economy starts out at full-employment equilibrium. Some events then occur that generate cost-push inflation. Which of the following events might cause cost-push inflation? A. a decrease in exports. B. an increase in the money wage rate or firms raise prices C. an increase in the quantity of money. D. a decrease in government expenditure.arrow_forwardIn an economy there is a 15.2 % fall in the consumer spending on the same basket of goods and services between the years 2015 and 2016. This means that there is ____. a. Inflation b. Deflation c. No change in price level d. Rise in Price levelarrow_forward
- If the inflation rate is positive, the price level in an economy is Select one: A. falling slowly. B. falling rapidly. C. constant. D. zero. E. rising.arrow_forwardIn the United States, the Federal Reserve has A. the same arrangement as the Bank of Canada has with the Canadian government. B. an inflation target, which has been in place since 1991. C. no goals. D. an inflation target of 2% mandated by Congress. E. a dual mandate. The real interest rate is approximately equal to A. the growth in real GDP. B. the nominal interest rate plus the inflation rate. C. the nominal interest rate minus the inflation rate. D. the nominal interest rate. E. one divided by the nominal interest rate minus the inflation rate.arrow_forwardAssuming prices and output are somewhat flexible, an increase in consumer spending will cause inflation to __________ in the short run and growth to ___________ in the short run. increase/decrease increase/increase decrease/increase decrease/decrease uncertain/decreasearrow_forward
- a government is facing high inflation, then it will take an action as following: I. increase taxes, increase discount rate II. decrease taxes, decrease discount rate III. increase taxes, decrease discount rate IV. decrease taxes, increase discount ratearrow_forwardAverage inflation rate is _______ the values of the highest and lowest individual inflation rates A. always lower B. always higher C. sometimes within D. sometimes twice E. always within F. sometimes higherarrow_forwardAssuming prices are sticky in the short run, a decrease in useful government spending will cause inflation to __________ in the short run and growth to ___________ in the short run. remain unchanged/decrease increase/increase decrease/increase decrease/decrease remain unchanged/remain unchangedarrow_forward
- As of July 2012, the 12 month CPI inflation rate was 1.4 percent and the 12 month core CPI inflation rate was 2.1 percent. The difference between these two measurements of inflation indicates :Select one a. prices for food and fuel grew more rapidly than prices for other .goods b. prices for food and fuel grew less .rapidly than prices for other goods .c. hyperinflation d. the underlying inflation rate was lower than the overall inflation ratearrow_forwarda. 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.arrow_forwardA falling price level is called as a. disinflation. b. deflation. c. a contraction. d. an inverted inflation.arrow_forward
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