PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 15, Problem 10RQ
To determine
Reason for placing the inflation rate low by the central banks.
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After staying virtually flat for about a year and a half, the average lending rate of banks has started to show signs of decline in April after the Bank of Ghana reduced the monetary policy rate the month before. The Summary of Economic and Financial Data (May 2020) published by the Bank of Ghana has shown that average lending rate has finally moved out of its comfort zone to a step downward. Prior to recording 22.38 percent in April, the average lending rate has since the past 17 months (December 2018) not come below 23%.How would banks benefit when interest rates decrease?
Anna Graham is the new Treasury Secretary, and she is trying to interpret some inflation measures. In year one, the aggregate
price level increased by 11% and in year two, the aggregate price level decreased by 1%.
Which statement accurately characterizes the changes in the nation's price level?
In year one, the economy is experiencing deflation. In year two, the economy is experiencing inflation.
In year one, the economy is experiencing inflation. In year two, the economy is also experiencing inflation.
In year one, the economy is experiencing inflation. In year two, the economy is experiencing deflation.
In year one, the economy is experiencing deflation. In year two, the economy is experiencing disinflation.
Antonio 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 Antonio's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario.
Inflation Rate
(Percent)
After-Tax Nominal Interest Rate
(Percent)
Real Interest Rate
Nominal Interest Rate
After-Tax Real Interest Rate
(Percent)
(Percent)
(Percent)
2.0
4.5
4.5
9.5
Compared with lower inflation rates, a higher inflation rate will
quantity of investment in the economy and
the after-tax real interest rate when the government taxes nominal interest income. This…
Chapter 15 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 15.A - Prob. 15A.1CCCh. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Why, in the absence of public beliefs that the...Ch. 15 - Prob. 9RQ
Ch. 15 - Prob. 10RQCh. 15 - Prob. 1PCh. 15 - For the economy in Problem 1, suppose that...Ch. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - For each of the following, use an AD-AS diagram to...Ch. 15 - Prob. 6PCh. 15 - Suppose that a permanent increase in oil prices...Ch. 15 - An economy is initially in recession. Using the...Ch. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 15.1CCCh. 15 - Prob. 15.2CCCh. 15 - Prob. 15.3CCCh. 15 - Prob. 15.4CCCh. 15 - Prob. 15.5CCCh. 15 - Prob. 15.6CCCh. 15 - Prob. 15.7CCCh. 15 - Prob. 15.8CCCh. 15 - Prob. 15.9CCCh. 15 - Prob. 15.10CC
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