Suppose that Shonda borrows $20,000 to purchase a car. The bank charges her a nominal interest rate of 9%. If the inflation rate decreases from 4% to 3%, which of the following is true? OA decrease in inflation decreases the real interest rate and hence decreases the real cost of borrowing. OA decrease in inflation increases the real interest rate and hence decreases the real cost of borrowing. The nominal interest rate does not change and hence the real cost of borrowing remains the same. OA decrease in inflation increases the real interest rate and hence increases the real cost of borrowing.

Question 2 The GDP deflator in year 4 is 120 and the GDP deflator in year 5 is 130. The rate of inflation between years 4 and 5 is O -10%. O 7.7%. O 8.33%. O 10%.

Please confirm my answer and justify!

12. Inflation-induced tax distortions Loc receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4.5% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 10%. The following table shows two scenarios: a low-inflation scenario and a high- inflation scenario. Given the real interest rate of 4.5% per year, find the nominal interest rate on Loc's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 3.5 4.5 8.5 4.5 Compared with lower inflation rates, a higher inflation rate will nominal interest income. This tends to the economy's long-run growth rate. saving, thereby the after-tax…

QUESTION 20 Table: The table below is for an imaginary economy of Orangeland where a typical consumer basket consists of 2 blankets and 10 coffees. Price of a Price of a Year Blanket Coffee 2017 $40 $3 2018 $45 $4 2019 $50 $5 Refer to Table. If the base year is 2018, then the economy's inflation rate in 2019 was O a. 15.38 percent. O b. 13.98 percent. Oc. 25.00 percent. O d. 20.00 percent.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was S77: in 2013. the basket's cost was $82; and in 2014, the basket's cost was $90. The value of the CPI in 2014 was O a. 109.8 and the inflation rate was 9.8%. O b. 109.8 and the inflation rate was 16.9%. O c. 116.9 and the inflation rate was 9.8. O d. 116.9 and the inflation rate was 16.9%.

Quantity of Nominal interest rate money demanded Quantity of money supplied (percent per year) (trillions of dollars) (trillions of doll ars) 2.9 2.5 2.8 2.5 2.7 2.5 8 2.6 2.5 9. 2.5 2.5 10 2.4 2.5 The above table has the demand and supply for money. What is the equilibrium nominal interest rate? O a. 7 percent O b. 6 percent O c. 9 percent O d. 5 percent O e. 8 percent

27