Bundle: Microeconomics for Today, Loose-leaf Version, 9th + Aplia, 1 term Printed Access Card
9th Edition
ISBN: 9781305926592
Author: Irvin B. Tucker
Publisher: Cengage Learning
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Question
Chapter 7, Problem 5SQ
To determine
Find out the real interest rate from nominal interest rate.
Expert Solution & Answer
Answer to Problem 5SQ
Option ‘d’ is correct.
Explanation of Solution
Option (d):
The real rate of interest can be calculated as follows:
The calculated value of real interest rate is equal to the given value of 3 percent. Thus, option 'd' is correct.
Option (a):
The calculated value of real interest rate is less than the given value of 5 percent. Thus, option 'a' is incorrect.
Option (b):
The calculated value of real interest rate is less than the given value of 15 percent. Thus, option ‘b’ is incorrect.
Option (c):
The calculated value of real interest rate is less than the given value of 6 percent. Thus, option ‘c’ is incorrect.
Economics Concept Introduction
Nominal interest rate: Nominal interest rate refers to the actual amount of money paid by the debtors to the creditors on a fixed amount of money.
Real interest rate: Real interest rate refers to the nominal interest rate which can be adjustable with inflation.
Inflation: Inflation refers to a continuous increase in the average price level in an economy.
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Students have asked these similar questions
If borrowers and lenders anticipate that the rate of inflation will be 5%, but instead it turns out to be 3%, which of the following is likely to occur?
Select one:
a. The real interest rate is higher than expected.
b. Lenders wish that they had made fewer loans.
c. Borrowers wish that they had borrowed more money.
d. Insufficient loans will have been made by lenders to maintain profit levels.
What are the impacts of inflation for borrowers and savers?
You 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 percent
Chapter 7 Solutions
Bundle: Microeconomics for Today, Loose-leaf Version, 9th + Aplia, 1 term Printed Access Card
Ch. 7.3 - Prob. 1GECh. 7.3 - Prob. 2GECh. 7 - Prob. 1SQPCh. 7 - Prob. 2SQPCh. 7 - Prob. 3SQPCh. 7 - Prob. 4SQPCh. 7 - Prob. 5SQPCh. 7 - Prob. 6SQPCh. 7 - Prob. 7SQPCh. 7 - Prob. 8SQP
Ch. 7 - Prob. 9SQPCh. 7 - Prob. 10SQPCh. 7 - Prob. 11SQPCh. 7 - Prob. 1SQCh. 7 - Prob. 2SQCh. 7 - Prob. 3SQCh. 7 - Prob. 4SQCh. 7 - Prob. 5SQCh. 7 - Prob. 6SQCh. 7 - Prob. 7SQCh. 7 - Prob. 8SQCh. 7 - Prob. 9SQCh. 7 - Prob. 10SQCh. 7 - Prob. 11SQCh. 7 - Prob. 12SQCh. 7 - Prob. 13SQCh. 7 - Prob. 14SQCh. 7 - Prob. 15SQCh. 7 - Prob. 16SQCh. 7 - Prob. 17SQCh. 7 - Prob. 18SQCh. 7 - Prob. 19SQCh. 7 - Prob. 20SQ
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