Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 23, Problem 8MCQ
To determine
To identify:
The percentage increase a year in the price level.
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Students have asked these similar questions
If the nominal interest rate is 5 percent and the inflation rate is 2 percent, what is the real interest rate?
Select one:
a. 7 percent
b. 5 percent
c. 6 percent
d. 3 percent
7. In 2000 the nominal rate of interest was 7 percent. The rate of inflation was 2.7 percent. The real rate
interest was:
b. 7 percent.
c. 4.3 percent
d. 2.7 percent
a. 9.7 percent.
If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is
a.
14 percent.
b.
6 percent.
c.
2.5 percent.
d.
.4 percent.
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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- Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI.arrow_forwardDescribe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate man using the GDP deflate:arrow_forwardSuppose Julie's salary went from $45,000 to 13. $175,000 in 12 years. a. Assuming she got the same percentage raise each of those twelve years, show how to calculate that rate (r%). b. Assuming that inflation was about 3% per year for those twelve years, by what percent did Julie's "purchasing power" increase? Explain what you think "purchasing power" means.arrow_forward
- If inflation is expected to increase, A. the nominal interest rate will increase. B. the nominal interest rate will decrease. C. the real interest rate will increase. D. the nominal interest rate will remain the samearrow_forwardYou put money into an account that earns a 8 percent nominal interest rate. The inflation rate is 3 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest? a. 3 percent b. 3.75 percent c. 5 percent d. 6 percentarrow_forwardExplain the nominal interest rate and effective interest rate. When both become the same number and when both become different number?arrow_forward
- If nominal GDP increases by 5 percent a year and the GDP price index rises by 2 percent a year, then real GDP increases by _______. A. 2.5 percent a year B. 3 percent a year C. 7 percent a year D. 10 percent a yeararrow_forward1. Masako buys a house in 1999. She obtains a mortgage that carries an annual interest rate of 12 per cent, and makes payments of $880 per month. The CPI in 1999 is 100, in 2000 it is 110, and in 2001 it is 120. What is the real interest rate in 2001? a - 4 per cent b - 21 per cent c - 3 per cent d - 9 per cent 2. Profit-push inflation is caused by: a - Firms lowering prices, causing demand to increase and eventually inflation to rise b - Workers push for higher wages, causing firms to raise prices and their cost of production has now risen c - Firms raising prices to raise profits further d - Firms negotiate lower pay with unions for stronger job security, creating larger profit margins for the firm 3. Wages at a rate greater than the minimum level can: a - create productivity gains if managed correctly b - encourage higher quality candidates to apply for positions c - encourage a labour surplus d - all of the options 4. A rise in the price level means a: a -…arrow_forwardIn an economy the nominal interest rate is 6% and the inflation is 4%. Calculate real interest rate.arrow_forward
- When lenders begin to expect higher levels of future inflation, a. Nominal interest rates today will fall as lenders try to maximize profits. b. Nominal interest rates today will rise and the price of consumption from a loan will fall. c. Nominal interest rates today will rise and the price of consumption from a loan will rise. d. There will be no change in nominal interest rates if the real rate of return remains greater than zero.arrow_forwardUnder which of the following conditions would you prefer to be the borrower? a. The nominal rate of interest is 20% and the inflation rate is 25%. b. The nominal rate of interest is 15% and the inflation rate is 14%. c. The nominal rate of interest is 12% and the inflation rate is 9%. d. The nominal rate of interest is 5% and the inflation rate is 1%.arrow_forwardFrank is lending $1,000 to Sarah for two years. Frank and Sarah agree that Frank should earn a 2 percent real return per year. Instructions: Enter your responses as as whole numbers. a. The CPI (times 100) is 100 at the time that Frank makes the loan. It is expected to be 110 in one year and 121 in two years. What nominal rate of interest should Frank charge Sarah? The nominal rate of interest charged should be %. b. Suppose Frank and Sarah are unsure what the CPI will be in two years. How should Frank index Sarah's annual repayments to ensure that he gets an annual 2 percent real rate of return. Frank should charge Sarah) % (Click to select) the inflation rate.arrow_forward
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