Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 23, Problem 10IAPA
To determine
The way the nominal interest rate must change if the inflation rate fell to 4.5%.
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Suppose there are 1200 units of money on an island, but money grows by 5.32% per year. Islanders spend each unit of money 2.3 times per year on average and this spending grows by 1.98%. The price level is at 34. GDP is expected to grow at 4.83%. What is the level of inflation? Answer this as a percentage without the percentage sign and round this to two digits after the decimal. ex. If you found the rate to be 5.125%, answer 5.13.
Chapter Problem 4
In 2006, an economy was at full employment.
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The quantity of money was growing at 6.1 percent a year, the nominal interest rate was 2.8 percent a year, real GDP grew at 4.4 percent a year, and the inflation rate was 2.1 percent a year.
Calculate the real interest rate.
The real interest rate was
percent a year.
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How might a rapid rise in inflation harm you? How might a rapid rise in inflation help you? In answering this question consider your role as both a consumer, worker, and borrower. Consider the likely effect on your real wages, and any interest you receive as a saver. Would it be advantageous to borrow money if you expected inflation to rise? Does it make economic sense to open a savings account at a bank given the latest increase in the CPI.
Chapter 23 Solutions
Foundations of Economics (8th Edition)
Ch. 23 - Prob. 1SPPACh. 23 - Prob. 2SPPACh. 23 - Prob. 3SPPACh. 23 - Prob. 4SPPACh. 23 - Prob. 5SPPACh. 23 - Prob. 6SPPACh. 23 - Prob. 7SPPACh. 23 - Prob. 8SPPACh. 23 - Prob. 9SPPACh. 23 - Prob. 10SPPA
Ch. 23 - Prob. 1IAPACh. 23 - Prob. 2IAPACh. 23 - Prob. 3IAPACh. 23 - Prob. 4IAPACh. 23 - Prob. 5IAPACh. 23 - Prob. 6IAPACh. 23 - Prob. 7IAPACh. 23 - Prob. 8IAPACh. 23 - Prob. 9IAPACh. 23 - Prob. 10IAPACh. 23 - Prob. 1MCQCh. 23 - Prob. 2MCQCh. 23 - Prob. 3MCQCh. 23 - Prob. 4MCQCh. 23 - Prob. 5MCQCh. 23 - Prob. 6MCQCh. 23 - Prob. 7MCQCh. 23 - Prob. 8MCQ
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- 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?arrow_forwardJim holds $50,000 in money at the beginning of the year. The annual inflation rate is 2 percent, and the price level rises from 1.0 to 1.02. What is the "inflation tax" that Jim pays at the end of the year? Jim pays an inflation tax of $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
- (Use this statement for pictures) Initially, Megan earns a salary of $300 per year and Larry earns a salary of $200 per year. Megan lends Larry $100 for one year at an annual interest rate of 16% with the expectation that the rate of inflation will be 12% during the one-year life of the loan. At the end of the year, Larry makes good on the loan by paying Megan $116. Consider how the loan repayment affects Megan and Larry under the following scenarios. correct the answers i picked out...arrow_forwardIn which situation would you rather be a borrower? the nominal interest rate is 10%, the inflation rate is 9% the nominal interest rate is 8%, the inflation rate is 6% the nominal interest rate i 6%, the inflation rate is 3% the nominal interest rate is 4%, the inflation rate is 0%arrow_forwardSuppose 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?arrow_forward
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