Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 15, Problem 9NP
a)
To determine
The nominal value of seignorage over the year.
b)
To determine
The inflation tax and the person who pay the tax.
c)
To determine
The inflation tax and the person who pay the inflation tax after considering interest rate on deposits.
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8a. Assume the following information. A banker will make a loan to a firm for one year. The real rate of interest
of is 2% determined in the Loanable Fund Market and inflation is expected to be 3% over the next year. What
nominal interest rate will she charge?
b. Now, assume that after the year, the borrower pays back the loan. What is the banker's (realized) real
interest rate, if actual inflation during the year is 11%?
C. According to the author, what does the example in part b. demonstrate about the economic cost of
unanticipated inflation to a society?
P1 Nominal and real rates. Tyra loves to shop at her favorite store, Dollar Barrel, where she can find
hundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree at
Dollar Barrel, but she is also thinking of investing her money.
a. Suppose the expected rate of inflation is 1% (so next year, everything at Dollar Barrel will cost $1.01) and
b. Now suppose that the expected inflation rate is 10% and Tyra can earn 20% on money that she invests over
the year. What is the approximate real rate of interest that Tyra will earn? Calculate the number of items
that Tyra could buy next year from Dollar Barrel if she invests her money. What is the percentage increase
in her purchasing power if she waits a year to go shopping?
Answer fill in the blue bozes below.
a. 1.) Approximately what real rate of interest could Tyra earn if she invests her money?
Nominal interest rate
Expected inflation
Approximate real rate
2.) How many items can she buy at…
Those are the production numbers for 3 different years for country B (50pts)
Year
Price of Bananas $
Quantity of bananas kg.
Price of backrubs $
Quantity of backrubs
1
1.00
5
6.00
5
2
1.00
5
6.00
7
3
2.00
10
6.00
9
Calculate real and nominal GDP for year 1, 2 and year 3 when base year is year 1.
Compute inflation in country B from period 1 to period 2.
Compute inflation rate from period 1 to 3
Compute inflation rate from period 2 to 3
Calculate GDP with Chain weighted method for period 3. Compare the result with the answer in part a.
Knowledge Booster
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- In January 2013, Lindsay's Lawn Service (LLS) had equipment valuing $11000. During 2013, LLS bought 3 new riding mowers for a total price of S9000. In December of 2013, the value of LLS's equipment equaled $17500. What was LLS's gross investment in 2013? What was LLS's net investment in 2013? What was LLS's depreciation in 2013? %24 %24arrow_forward(2)The data below show the NOMINAL GDP (Y) and GDP deflator (P) for an economy over a five-year period. Year 2. 3. 4 750 780 796 829 892 Y 130 133 135 136 141 (a)For this economy, compute the short term and long-term growth rates. (Round figures to 2 decimal points) (b)Find the average rate of inflation for the entire five-year periodarrow_forward16. Explain the difference between nominal and real interest rates. interest rates are the stated rates of interest. The ( nominal rates corrected for the effects of inflation on the interest payments. The high real rate represents the decrease in purchasing power that the lender receives from the borrower and can be approximated by ( adding, subtracting ) the rate of inflation from the nominal rate of interest. interest rates are the That is, approximately, Real Interest Rate = Nominal Interest - Inflation Rate. How does inflation explain differences between nominal and real interest rates? A nominal interest rate of 10% with a 6% inflation rate will mean that real interest rates are approximately %.arrow_forward
- Describe the concepts of nominal and effective interest?arrow_forward4.In 2020, interest rates were 9.2% and the rate of inflation was 11%. What was the realinterest rate in 2020? How would the purchasing power of your savings have changed overthe year?arrow_forwardWhat is the inflation rate in 2019? Has it increased or decreased since 2018 and by how much? If the nominal interest rate in 2019 is 7%, what would be the change in purchasing power of $1,000 deposited in January 219 by the end of the year? Please explain if it has increase or decreased since 2018 and by how much? also what if inflation rate was higher then purchasing power?arrow_forward
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