ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Suppose banks require a real interest rate of 10 percent. If they expect inflation to be 2 percent, what is the nominal interest rate?
Multiple Choice
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5 percent
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20 percent
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8 percent
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12 percent
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- Use the information in the table to calculate the %change in prices (inflation rate), using a chain-weighted methodology. Q1=2 Q2=3 Year (t) P1 E1 P2 E2 E(t) 2017 $1.05 $2.00 2018 $1.10 $2.10 2019 $1.10 $2.15 2020 $1.15 $2.15 Price Index Inflation Rate 2017 2018 2019 2020 Question 1: What is the inflation rate for 2019? a) 1.76% b) 1.16% c) -0.60% d) -3.02arrow_forwardSuppose banks require a real interest rate of 10 percent. If they expect inflation to be 2 percent, what is the nominal interest rate? Multiple Choice 5 percent 20 percent 8 percent 12 percentarrow_forwardIf a bank expects inflation to increase in the near future, how will it respond? It will start paying less interest on deposits. It will seek to reduce the amount of cash held in its vaults. It will temporarily scale back its efforts to gain new customers. It will start charging more interest on loans. It will temporarily suspend withdrawals.arrow_forward
- How 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_forwardAverage inflation went up by 65.5% since the turn of the century while college tuition and fees soared by 175%. Why has the relative price of college increased so much compared to average inflation?arrow_forwardWhy is it important that the rate at which we earn interest should be higher than the inflation ratearrow_forward
- The real interest rate is 6 percent a year and the income tax rate is 50 percent. With no inflation, what is the real after-tax interest rate? If the inflation rate rises to 4 percent a year, what is the real after-tax interest rate?arrow_forwardAssume 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_forwardassume 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_forward
- The ___ is the nominal interest rate minus the rate of inflation. Question 13 options: real GDP real interest rate annualized interest rate nominally adjustedarrow_forwardDoes the BLS method of assessing inflation imply that consumers actually purchase the same goods and services year after year?arrow_forwardIf the nominal interest rate is 4.2 percent and expected inflation rate is 3 percent, the real interest rate equals 7.2 percent. 1.2 percent. 3.6 percent. 12.6 percent. none of the abovearrow_forward
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