MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 7, Problem 10SQ
To determine
The meaning of real interest rate.
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If you deposit money in the bank for one year
scenario 1: nominal interest rate = 10%, inflation rate = 0% 
Scenario 2: normal interest rate = 25%, inflation rate = 15%
In which scenario does the real value of the deposit grow the most? Explain.
In which situation is the real interest rate highest?
In which situation is the real interest rate highest?
A. The nominal interest rate is 25% and the inflation rate 30%.
B. The nominal interest rate is 2% and the inflation rate 1%.
C. The nominal interest rate is 8% and the inflation rate 5%.
D. The nominal interest rate is 11% and the inflation rate 9%.
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
Chapter 7 Solutions
MACROECONOMICS FOR TODAY
Ch. 7.2 - Prob. 1GECh. 7.2 - Prob. 2GECh. 7.2 - Prob. 1YTECh. 7.2 - Prob. 2YTECh. 7 - Prob. 1SQPCh. 7 - Prob. 2SQPCh. 7 - Prob. 3SQPCh. 7 - Prob. 4SQPCh. 7 - Prob. 5SQPCh. 7 - Prob. 6SQP
Ch. 7 - Prob. 7SQPCh. 7 - Prob. 8SQPCh. 7 - Prob. 9SQPCh. 7 - Prob. 10SQPCh. 7 - Prob. 11SQPCh. 7 - Prob. 1SQCh. 7 - Prob. 2SQCh. 7 - Prob. 3SQCh. 7 - Prob. 4SQCh. 7 - Prob. 5SQCh. 7 - Prob. 6SQCh. 7 - Prob. 7SQCh. 7 - Prob. 8SQCh. 7 - Prob. 9SQCh. 7 - Prob. 10SQCh. 7 - Prob. 11SQCh. 7 - Prob. 12SQCh. 7 - Prob. 13SQCh. 7 - Prob. 14SQCh. 7 - Prob. 15SQCh. 7 - Prob. 16SQCh. 7 - Prob. 17SQCh. 7 - Prob. 18SQCh. 7 - Prob. 19SQCh. 7 - Prob. 20SQ
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- Suppose that the nominal interest rate is 8% and that the expected rate of inflation is 9%. A)Calculate the real interest rate. Provide an economic interpretation. B)Is the real interest rate a better measure of the cost of a loan than is the nominal interest rate? Why or why not?arrow_forwardThe higher the expected rate of inflation, A) the lower is the nominal rate of interest. B) the higher is the real rate of interest. C) the lower is the real rate of interest. D) the higher the real and nominal rates of interestarrow_forwardHow each of the real interest rate ad the nominal interest rate is determined and explain the relationship between these two rates. Real interest rate Nominal interest rate: The relationship between nominal interest rate and real interest rate:arrow_forward
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