Economics: Private and Public Choice (MindTap Course List)
15th Edition
ISBN: 9781285453538
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 9, Problem 5CQ
To determine
Identify the current interest rate on ten-year government bonds.
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What is the difference between real and nominal interest rates?
why is the distinction important? What factors change interestrates?
Discuss the relationship between nominal and effective interest rates?
If you are a banker, should you consider the nominal or real interest rate when deciding which rate to charge for a loan? Explain in 250 words.
Chapter 9 Solutions
Economics: Private and Public Choice (MindTap Course List)
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Similar questions
- Bankers make loans in the Nominal Interest Rate, so why do bankers care so much about the Real Interest Rate?arrow_forwardTrue or false? The nominal rate of interest is the difference between the real rate and the expected rate of inflation.arrow_forwardIllustrate the relationship between nominal and effective interest rates?arrow_forward
- "The rate of return to bonds should be near equal to the equilibrium interest rate in the credit market." True or False?arrow_forwardWhich situation leads to the distinction between nominal and effective interest?arrow_forwardSeveral factors may influence interest rates for individual securities in an economy like the United Kingdom. One such factor is inflation. Explain fully how the factor may influence interest rates of individual securities in an economy.arrow_forward
- Do the interest rates reflect the market interest rate?arrow_forwardWhat does this mean? "When drawn against the real interest rate, output supply increases if the labor supply is increasing in the interest rate."arrow_forwardDraw a graph of a typical Real and Nominal Interest Rates (Three-Month TreasuryBills), and discuss why it usually takes that change.arrow_forward
- the equilibrium real interest rate in some country is quite low. What could be three possible explanations for this situation?arrow_forwardWill real wages start rising? If they don’t, should the central banks be raising the interest rate? Explain why.arrow_forwardWhich would be a better way for government to protect its investors from inflation: offer a bond linked to changes in the CPI, or a bond guaranteed to pay its principal in a fixed amount of gold bullion?arrow_forward
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