Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 28, Problem 8SPPA
To determine
To explain:
The way after-tax real interest rate on an overdue credit card balance change.
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Which situation leads to the distinction between nominal and effective interest?
Economics
Suppose that on January 1, 2022, the price of a one-year Treasury bill with a face value of $1,000-is $926,78 Investors expect that the inflation rate will be 4%
during 2022, but at the end of the year, the inflation rate turns out to have been 1%.
The nominal interest rate on the bill (measured as the yield to maturity) is% (Round your response to two decimal places)
Many countries have policies that limit how much interest a moneylender can charge on a loan.
Do you think these limits are a good idea?
Who benefits from the laws and who loses?
What are likely to be the long-term effects of such laws?
Tips:
For part 2, you may think about how a low interest rate would affect the poor and those who owe huge debts.
For part 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).
Chapter 28 Solutions
Foundations of Economics (8th Edition)
Ch. 28 - Prob. 1SPPACh. 28 - Prob. 2SPPACh. 28 - Prob. 3SPPACh. 28 - Prob. 4SPPACh. 28 - Prob. 5SPPACh. 28 - Prob. 6SPPACh. 28 - Prob. 7SPPACh. 28 - Prob. 8SPPACh. 28 - Prob. 9SPPACh. 28 - Prob. 10SPPA
Ch. 28 - Prob. 11SPPACh. 28 - Prob. 1IAPACh. 28 - Prob. 2IAPACh. 28 - Prob. 3IAPACh. 28 - Prob. 4IAPACh. 28 - Prob. 5IAPACh. 28 - Prob. 6IAPACh. 28 - Prob. 7IAPACh. 28 - Prob. 8IAPACh. 28 - Prob. 9IAPACh. 28 - Prob. 10IAPACh. 28 - Prob. 11IAPACh. 28 - Prob. 12IAPACh. 28 - Prob. 1MCQCh. 28 - Prob. 2MCQCh. 28 - Prob. 3MCQCh. 28 - Prob. 4MCQCh. 28 - Prob. 5MCQCh. 28 - Prob. 6MCQCh. 28 - Prob. 7MCQCh. 28 - Prob. 8MCQ
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- Suppose a credit market with good borrowers and 1−a bad borrower. The good borrowers are all identical and always repay their loans. Bad borrowers never repay their loans. Banks issue deposits that pay a real interest rate r, and make loans to borrowers. Banks cannot tell the difference between a good borrower and a bad one. Each borrower has collateral, which is an asset that is worth A units of future consumption goods in the future period. Determine the interest rate on loans made by banks. How will the interest rate change if each borrower has more collateral?arrow_forwardClassify each of the following in terms of their effect on interest rates (increase or decrease): I. Covenants on borrowing become more restrictive. II. The Federal Reserve increases the money supply. III. Total household wealth increases. Multiple Choice I increases; Il increases; I increases I increases; Il decreases; Ill decreases I decreases; Il increases; Il increases I decreases; Il decreases; III decreases うう うう9arrow_forwardCindy takes a summer job and earns an after-tax income of $8,000. Her living expenses during the summer were $2,000. What was Cindy's saving during the summer and the change, if any, in her wealth? >>> If your answer is negative, include a minus sign. If your answer is positive, do not include a plus sign. Cindy's saving during the summer is $9 The change in Cindy's wealth is $0. Nezarrow_forward
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