MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 7, Problem 12SQ
To determine
The expected real interest rate in the economy.
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In which of the following situations is it least advantageous to be lending?
Select one:
A. The nominal interest rate is 1 percent and the real interest rate is 0 percent.
B. The real interest rate is 2 percent and the nominal interest rate is 10 percent.
C. The nominal interest rate is 4 percent and the real interest rate is -2 percent.
D. The real interest rate is 4 percent and the nominal interest rate is 7 percent.
Suppose that the nominal rate of interest is 6 percent and the inflation premium is 1 percent.
What is the real interest rate? %
Alternatively, assume that the real interest rate is 3 percent and the nominal interest rate is 8 percent.
What is the inflation premium? %
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?
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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Similar questions
- assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 1 percent. Calculate the real rate of interest.arrow_forwardAssume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct? This means the nominal rate of interest is 7 percent and the real rate is 5 percent. This means the real rate of interest is 2 percent. The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent. This means the nominal rate of interest is 35 percent. If the rate of inflation falls, your real rate of interest from this asset would also fall.arrow_forwardSuppose banks require a real interest rate of 12 percent. If they expect inflation to be 3 percent, what is the nominal interest rate? Multiple Choice 36 percent 15 percent 9 percent 4 percentarrow_forward
- Suppose I lend my friend Peter $100 for one year, and he agrees to repay me with interest. We each have an expectation that the inflation rate over the coming year will be 5 percent, and so we agree that he will pay me back at a nominal rate of 7 percent interest. a) What real rate of return do I expect to receive? b) What happens if inflation turns out to be 8 percent over the year? Who is made better off and who is made worse off? c) What happens if inflation turns out to be 3 percent over the year? Who is made better off and who is made worse off?arrow_forwardSuppose a nominal interest rate is 12%, and the expected rate of inflation is 9%. If next year the expected rate of inflation rises to 11%, what would most likely happen as a result?arrow_forwardYou deposit $200 in a savings account on January 1, and the bank pays you interest of $10 at the end of the year. During the year, the average price level rises by 2 percent. What is the real interest rate on your savings account? The real interest rate on your savings account is _______. A. 3 percent a year B. 2 percent a year C. $6 D. 6 percent a yeararrow_forward
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