MACROECONOMICS FOR TODAY-W/LMS MINDTAP
9th Edition
ISBN: 9781305927117
Author: Tucker
Publisher: CENGAGE L
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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
Jay and Joyce meet George, the banker, to work out the details of a mortgage. They all expect that inflation will be 2 percent over the term of the loan, and they agree on a nominal interest rate of 6 percent. As it turns out, the inflation rate is 5 percent over the term of the loan.
a. What was the expected real interest rate? b. What was the actual real interest rate?
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
MACROECONOMICS FOR TODAY-W/LMS MINDTAP
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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