Principles of Economics (Second Edition)
2nd Edition
ISBN: 9780393614077
Author: coppock, Lee; Mateer, Dirk
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 21, Problem 6QFR
To determine
(a)
To explain:
If inflation rate increases more than expected then whether the employee or an employer is hurt.
To determine
(b)
To explain:
If there is an unanticipated deflation, whether the employee or an employer is hurt.
To determine
(c)
To explain:
The harmful effects of increase in the inflation rate more than expected.
To determine
(d)
To explain:
The beneficial effect of increased inflation rate more than expected.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Wage agreements and loan contracts are two types of multiperiod agreements that are important for economic growth. Suppose you sign a two-year job contract with Wells Fargo stipulating that you will receive an annual salary of $93,500 plus an additional 2% above that in the second year, to account for expected inflation.
If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why?
If the inflation rate turns out to be 1% rather than 2%, who will be hurt? Why?
Suppose that Lisa lends Alex $1,000, which Alex must repay after one
year with an interest payment of 10%.
When Lisa lends money to Alex, she expects that the inflation rate over
the year will be 3%.
However, after she lends the money, the actual inflation rate for the
year turns out to be 5%.
In this scenario, who gains from the higher than expected inflation
rate?
Suppose you borrow $100 from a bank at 5 percent interest for 1 year and the inflation rate that year is 10 percent. Was this loan advantageous to you or the bank?
Chapter 21 Solutions
Principles of Economics (Second Edition)
Knowledge Booster
Similar questions
- Suppose that you also take out a $1,000 loan at the Cavalier Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%. If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why? If the inflation rate turns out to be 3% rather than 2%, who will be helped? Why?arrow_forwardLet's suppose if you have $200,000 in a bank term account. You earn 5% interest per annum from this account.You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%. Calculate the impact of inflation on the bank term deposit you have and examine the effects of inflation in your city of residence with attention to food and accommodation expenses.arrow_forwardSuppose you took out 20,000 in student loans at a fixed interest rate of 5%. Assume that after you graduate, inflation rises significantly as you are paying back your loans. Does this rise in inflation benefit you in paying back your student loans? Who is hurt more from unexpected higher inflation, a borrower or a lender ?arrow_forward
- Dean borrows $400 from Tim. Tim wants to make a 7% real return on his money, so they both agree on a 7% stated interest rate paid next year. Dean and Tim did not anticipate any inflation, yet the actual inflation turned out to be 2% next year. In this case, what is Tim’s real rate of return?arrow_forwardYour parents have given you $1,500 a year before your graduation so that you can take a trip when you graduate. You wisely decide to invest the money in a bank CD that pays 7% interest. You know that the trip costs $1600 right now and that inflation for the year is predicted to be 3%. Will you have enough money in a year to purchase the trip? Show your calculations.arrow_forwardAn investment offers a total return of 13.8 percent over the coming year. You believe the total real return will be only 9.4 percent. What do you believe the exact inflation rate will be for the next year?arrow_forward
- You are given a loan with a nominal interest rate of 5%. You must pay back this loan one year from now. Over the next year inflation is at 4%. In real terms what is the effective interest rate you must pay the loan back at after adjusting for inflation?arrow_forwardSuppose you have $150,000 in a bank term account. You earn 5% interest per annum from this account. You anticipate that the inflation rate will be 3% during the year. However, the actual inflation rate for the year is 6%. Calculate the impact of inflation on the bank term deposit you have. ii. Examine the effects of inflation in your city of residence with attention to food and accommodation expenses. iii. The Australian Bureau of Statistics (ABS) reported in May 2016 that the civilian population in Australia over 15 years of age was 19.8 million. Of this population of 19.8 million Australians, 12.5 million were employed and 0.7 million were unemployed. Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force?arrow_forwardSuppose the economy’s nominal GDP constantly grows at 9%, and real GDP constantly grows at 4%What is the inflation rate? How long does it take for an item that costs $1 today to cost $4?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co