Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 14, Problem 12QP
To determine
The real interest rate.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Why does inflation have a positive effect on the nominal interest rate?
If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then what is the real rate of interest?
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.
Chapter 14 Solutions
Macroeconomics (Book Only)
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1VQPCh. 14 - Prob. 2VQPCh. 14 - Prob. 3VQPCh. 14 - Prob. 4VQPCh. 14 - Prob. 5VQPCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNG
Knowledge Booster
Similar questions
- True or false? The nominal rate of interest is the difference between the real rate and the expected rate of inflation.arrow_forwardFor each of the following years, determine the real interest rate. Find the difference between this rate and the desired real interest rate and explain how any difference affects borrowers and lenders. Write out percentage rates as whole numbers e.g. 5%. a. In year 1, the nominal interest rate is 10%, the inflation premium on loans is 4%, and actual rate of inflation is 5%. %, the desired real interest is %, borrowers are (Click to select) and lenders are The real interest rate is (Click to select) b. In year 2, the nominal interest rate is 11%, the inflation premium is 5%, and the actual rate of inflation is 3%. %, borrowers are (Click to select) %, the desired real interest is The real interest rate is (Click to select) ✓ c. In year 3, the nominal interest rate is 9%, the inflation premium is 3%, and the actual rate of inflation is 3%. %, borrowers are (Click to select) and lenders are The real interest rate is (Click to select) %, the desired real interest is and lenders arearrow_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_forward
- Refer to the hypothetical data in the table to answer the three questions. What was the real interest rate in 2017? What was the inflation rate in 2018? What was the nominal interest rate in 2019? % % % Year Nominal interest rate Real interest rate Inflation rate 2017 7% 2018 2019 3% 1% 7% 7% 5%arrow_forwardWhat is the difference between interest rates and inflation rates? Give an example of each.arrow_forwardFor each of the annual inflation rates given in the following table, first determine the new price of a comic book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Eileen's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest comic book. For example, if you find that the deposit will cover 20.7 comic books, you would round the purchasing power down to 20 comic books under the assumption that Eileen will not buy seven-tenths of a comic book.arrow_forward
- The Nominal Interest rate and inflation rate in an economy is same. What will be the real interest in such case?arrow_forwardFor each of the following years, determine the real interest rate. Find the difference between this rate and the desired real interest rate and explain how any difference affects borrowers and lenders. Write out percentage rates as whole numbers e.g. 5%. a. In year 1, the nominal interest rate is 9%, the inflation premium on loans is 5%, and actual rate of inflation is 6%. The real interest rate is 1%, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select) ♥ b. In year 2, the nominal interest rate is 10%, the inflation premium is 6%, and the actual rate of inflation is 4%. %, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select) v The real interest rate is c. In year 3, the nominal interest rate is 8%, the inflation premium is 4%, and the actual rate of inflation is 4%. |%, the desired real interest is %, borrowers are (Click to select) and lenders are (Click to select) - The real interest rate is 曲arrow_forwardSuppose the nominal interest rate is 0.64 and the expected inflation rate is 0.47 1) What is the exact real interest rate? 2) What is the approximate real interest rate?arrow_forward
- 1. Currently the prime interest rate, which is the interest rate given to customers with the best credit, in the United States is 3.25% and the inflation rate is 1.3%. a. How much is the real interest rate? b. What will happen to the real interest rate if – all else equal – the inflation rate increases? Provide an example to support your answer. How will the change in the real interest rate from part b, affect the quantity of savings in the United States? How will this change affect the supply of loanable funds. C.arrow_forwardIs the Market interest rate commonly known as the nominal interest rate? Why?arrow_forwardDo you think a negative nominal interest rate can happen? What about a negative real interest rate? Explain.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning