Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 17, Problem 20SQ
To determine
The impact of lower than the expected rate of inflation.
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(b) It is given that the nominal income rose by 5% from the base year to the subsequent year. Since the growth in nominal income is less than the rate of inflation, the family is worse off in terms of what they are able to buy.
Assume that in Azerbaijan, Alyana deposits $5,000 in the bank for a single year. Given the following cases, answer the questions.
CASE 1: inflation = 0%, nominal interest rate = 5%
CASE 2: inflation = 5%, nominal interest rate = 10%
CASE 3: inflation = 10 %, nominal interest rate = 15%
In which case does the real value of your deposit grow the most?
Assume the tax rate is 30%.
In which case do you pay the most taxes?
Compute the after-tax nominal interest rate,then subtract inflation to get the after-tax real interest rate for both cases. Answer all parts
During times of high inflation, would you rather be
A. A lender
B. A borrower
C. Fixed income earner
D. Have your income grow slower compared to inflation
Chapter 17 Solutions
Economics For Today
Ch. 17.2 - Prob. 1GECh. 17.2 - Prob. 2GECh. 17.2 - Prob. 1YTECh. 17.2 - Prob. 2YTECh. 17 - Prob. 1SQPCh. 17 - Prob. 2SQPCh. 17 - Prob. 3SQPCh. 17 - Prob. 4SQPCh. 17 - Prob. 5SQPCh. 17 - Prob. 6SQP
Ch. 17 - Prob. 7SQPCh. 17 - Prob. 8SQPCh. 17 - Prob. 9SQPCh. 17 - Prob. 10SQPCh. 17 - Prob. 11SQPCh. 17 - Prob. 1SQCh. 17 - Prob. 2SQCh. 17 - Prob. 3SQCh. 17 - Prob. 4SQCh. 17 - Prob. 5SQCh. 17 - Prob. 6SQCh. 17 - Prob. 7SQCh. 17 - Prob. 8SQCh. 17 - Prob. 9SQCh. 17 - Prob. 10SQCh. 17 - Prob. 11SQCh. 17 - Prob. 12SQCh. 17 - Prob. 13SQCh. 17 - Prob. 14SQCh. 17 - Prob. 15SQCh. 17 - Prob. 16SQCh. 17 - Prob. 17SQCh. 17 - Prob. 18SQCh. 17 - Prob. 19SQCh. 17 - Prob. 20SQ
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- Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate man using the GDP deflate:arrow_forwardThe 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.arrow_forwardThe average hourly wage in 1975 was $6.50, and $17 in 2002. CPI stood at 42 in 1975 and the CPI base year is 2002. Calculate the rate of inflation between 1975 and 2002. What is the average hourly wage in 2002 in real terms (i.e. in terms of the 1975 average hourly wage)? In terms of living standards, is the worker better off in 1975 or 2002? Justify your answer. Why might banks be reluctant to lend money if a country has a history of inflation rising unexpectedly? Justify your answer(s).arrow_forward
- Which on of the following is not a measure of inflation? A. RPI B. CPI C. CPIH D. APRarrow_forwardThe Nominal Interest rate and inflation rate in an economy is same. What will be the real interest in such case?arrow_forwardCPI increased from 200 to 220 between 2016 and 2017 , while the nominal interest rate was 5% in 2017. What was the inflation rate during the year? What was the real interest rate in 2017 based on Fisher Equation?arrow_forward
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