EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Question
Chapter 34, Problem 2TY
To determine
The effect of a different real rate of interest on government bonds.
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Students have asked these similar questions
You take out student loans to help pay for your degree at a 5% annual interest rate. Assume the bank expected inflation to average 3% per year. What real interest rate did they expect to earn from your loan? What happens if inflation is actually 5% per year? Who is better off if inflation is higher than expected? What if it is lower than expected? Why?
Suppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%.
If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why?
If the inflation rate turns out to be 3% rather than 2%, who will be helped? Why?
Suppose 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?
Chapter 34 Solutions
EBK ECONOMICS: PRINCIPLES AND POLICY
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Similar questions
- Let's suppose if you have $200,000 in a bank term account. You earn 5% interest per annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%. Calculate the impact of inflation on the bank term deposit you have and examine the effects of inflation in your city of residence with attention to food and accommodation expenses.arrow_forwardIn order to make up for the future loss in purchasing power. the rate at which you earn interest must be sufficiently higher than the anticipated inflation rate. True or false?arrow_forwardYou open a savings account with a 0.5% per year nominal interest rate, and the economy experiences 3% per year inflation. What is your nominal and real annual interest rate on the account? What will happen to the purchasing power of money you place in the account over time?arrow_forward
- Assume the expected rate of inflation is 3 percent per year. What nominal interest rate should you charge to receive a real interest rate of 2 percent per year?arrow_forwardHow 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_forwardAbhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Abhijit’s purchasing power has increased by 2 percent. Select one: True Falsearrow_forward
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