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- 1.As the inflation rate increases, the present value of a fixed payment receive in the future a) decreases b) stays the same c) increases 2. As the opportunity cost of your funds increases, the future value of a payment received today a) decreases b) stays the same c) increasesInflation and interest rates a) Define/explain the consumer price index. b) Suppose that the nominal interest rate is 6.5% per year and you borrow $200. How much money will you have to repay in a year? c) Suppose that the nominal interest rate is again 6.5% and inflation is 1%. What is the real interest rate? d) Now suppose that the nominal interest rate is 1% and the inflation rate is 1.5%. What is the real interest rate? Would you like to be a lender or a borrower in this case? Why? Please explain/show how to do the calculations1.Calculate the inflation rate (annual percentage change in price level) for every year in U.S Base year is one year before the given year. For example. You want to calculate the inflation rate in 2013, the base year will be 2012. If you want to calculate then inflation rate in 2014, the base year will be 2013. If you want to calculate the inflation rate in 2015, the base year will be 2014 Inflation rate CPI years 2011 247.71 252.58 2012 2013 256.83 2014 260.23 2015 260.55 2.Calculate the Real income for every year. Nominal income. Real income CPI years $49,416 $50,895 $52,223 $52,996 $56,415 2011 247.71 252.58 2012 256.83 2013 260.23 2014 260.55 2015 3.Calculate the CPI for every year. (base year 2011). CPI (Don't time 100 Cost of living in Dallas years $148,900 $249,000 $267,000 $300,000 $360,000 2011 2012 2013 2014 2015
- 14. If the nominal interest rate is 8% and the inflation rate is 3%, the real interest rate A) 11% B) 5% C) -5%. D) 8/3 = 2.67% E) cannot be determined from the information given %3!50) You put money into an account and earn an after-tax real interest rate of 2.5 percent. If the nominal interest rate on the account is 8 percent and the inflation rate is 2 percent, then what is the tax rate? A) 28.00 percent. B) 36.25 percent. C) 43.75 percent. D) 67.50 percent.Table 24-7 The table below lists the prices of chips and salsa for the year 2018, 2019, 2020. Assume that the typical consumer buys 8 bags of chips and 4 jars of salsa each month, and that 2019 is the base period. Year 2018 2019 2020 Price of Chips $2.50 $2.40 $2.60 Price of Salsa $2.50 $2.55 $2.75 Refer to Table 24-7. Calculate the inflation rate for 2020
- 1. In a specified year, nominal gross domestic product grew by 12 percent and real gross domestic product grew by 5 percent. What would be the inflation rate for this year? 7% -7% 8% 17% 2. Which of the following could result in simultaneous increases in unemployment and inflation? Which of the following could result in simultaneous increases in unemployment and inflation? An increase in the overall level of productivity A decrease in government spending A decrease in the money supply An increase in the expectations of future inflation 3. From 2017 to 2018, the unemployment fell from 4.3 to 3.9 percent while inflation fell from 3.2 to 1.4 percent. Which of the following is a valid reason behind these changes? Aggregate supply curve shifted to the right Aggregate supply curve shifted to the left Aggregate demand curve shifted to the right Aggregate demand curve shifted to the left 4. According to the law of diminishing marginal utility, which of the following choices…37) If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the real interest rate turned out to be 5.1%, then the nominal interest rate equals A) 1.4%. B) 1.5%. C) 2.6%. D) 6.5%.17) The inflation rate for the current year is measured by which equation? (...using the CPI = consumer price index) 18) A country's consumer price index (CPI) was 150 last year, and this year it is 170. What is its inflation rate for this year? 19) Suppose that the consumer price index (CPI) was 140 in 2017 and 147 in 2018. What was the country's inflation rate during this time? 20) Refer to the following graph to answer the next question. European Union (EU) and US inflation - Selected Years Data based on OECD estimates Rate of Inflation 14% 12% 10% 8% 6% US 2% 0% 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 929394959697 Years (1970-1997) Is there a relationship between US inflation and EU inflation? 14% 12% 10% 8% 2% 0%
- The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. The inflation rate between Year 1 and Year 2 is The inflation rate between Year 2 and Year 3 is Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 15 3 1 Price in the Base Year % (Round both answers to one decimal place.) %. $2.50 $15.00 $450.00 Price in Year 2 $3.13 $13.50 $495.00 Price in Year 3 $3.75 $15.00 $585.00The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 10 3 1 The inflation rate between Year 1 and Year 2 is The inflation rate between Year 2 and Year 3 is Price in the Base Year $3.50 $10.00 $500.00 Price in Year 2 $4.38 $9.00 $550.00 Price in Year 3 $4.73 $10.50 $600.00 %. (Round both answers to one decimal place.) %.In which situation would you rather be a borrower? the nominal interest rate is 10%, the inflation rate is 9% the nominal interest rate is 8%, the inflation rate is 6% the nominal interest rate i 6%, the inflation rate is 3% the nominal interest rate is 4%, the inflation rate is 0%
