Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 9, Problem 9.6.2RQ
To determine
Impact of increase in inflation rate on the nominal interest rate.
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Students have asked these similar questions
Briefly state two reasons why inflation may be considered to be an economic problem.
The following table shows the average nominal interest rates on six-month Treasury bills between
2004 and 2008, which determined the nominal interest rate that the U.S. government paid when it
issued debt in those years. The table also shows the inflation rate for the years 2004 to 2008. (All
rates are rounded to the nearest tenth of a percent.)
Year
2004
INTEREST RATE (Percent)
2006
2007
2008
5.0
3.0
Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified
September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
On the following graph, use the orange points (square symbol) to plot the nominal interest rates
for the years 2004 to 2008. Next, use the green points (triangle symbol) to plot the real interest
rates for those years.
28
1.0
2005
-16
-40
-40
Nominal Interest Rate Inflation Rate
(Percent)
1.6
2003
3.4
4.8
4.4
1.6
2004
2005
2006
2007
2008
(Percent)
27
3.4
3.2
2.9
3.8
2006
YEAR
Nominal Interest Rate
Real Interest Rate
(?)
According to…
Is the Market interest rate commonly known as the nominal interest rate? Why?
Chapter 9 Solutions
Macroeconomics (7th Edition)
Ch. 9 - Prob. 9.1.1RQCh. 9 - Prob. 9.1.2RQCh. 9 - Prob. 9.1.3RQCh. 9 - Prob. 9.1.4RQCh. 9 - Prob. 9.1.5RQCh. 9 - Prob. 9.1.6RQCh. 9 - Prob. 9.1.7PACh. 9 - Prob. 9.1.8PACh. 9 - Prob. 9.1.9PACh. 9 - Prob. 9.1.10PA
Ch. 9 - Prob. 9.1.11PACh. 9 - Prob. 9.1.12PACh. 9 - Prob. 9.1.13PACh. 9 - Prob. 9.1.14PACh. 9 - Prob. 9.2.1RQCh. 9 - Prob. 9.2.2RQCh. 9 - Prob. 9.2.3RQCh. 9 - Prob. 9.2.4PACh. 9 - Prob. 9.2.5PACh. 9 - Prob. 9.2.6PACh. 9 - Prob. 9.2.7PACh. 9 - Prob. 9.2.8PACh. 9 - Prob. 9.3.1RQCh. 9 - Prob. 9.3.2RQCh. 9 - Prob. 9.3.3RQCh. 9 - Prob. 9.3.4PACh. 9 - Prob. 9.3.5PACh. 9 - Prob. 9.3.6PACh. 9 - Prob. 9.3.7PACh. 9 - Prob. 9.3.8PACh. 9 - Prob. 9.4.1RQCh. 9 - Prob. 9.4.3RQCh. 9 - Prob. 9.4.4PACh. 9 - Prob. 9.4.5PACh. 9 - Prob. 9.4.6PACh. 9 - Prob. 9.4.7PACh. 9 - Prob. 9.4.9PACh. 9 - Prob. 9.4.10PACh. 9 - Prob. 9.5.1RQCh. 9 - Prob. 9.5.2RQCh. 9 - Prob. 9.5.3PACh. 9 - Prob. 9.5.4PACh. 9 - Prob. 9.5.5PACh. 9 - Prob. 9.5.6PACh. 9 - Prob. 9.5.7PACh. 9 - Prob. 9.5.8PACh. 9 - Prob. 9.6.1RQCh. 9 - Prob. 9.6.2RQCh. 9 - Prob. 9.6.3RQCh. 9 - Prob. 9.6.4RQCh. 9 - Prob. 9.6.5PACh. 9 - Prob. 9.6.6PACh. 9 - Prob. 9.6.7PACh. 9 - Prob. 9.6.8PACh. 9 - Prob. 9.6.9PACh. 9 - Prob. 9.7.1RQCh. 9 - Prob. 9.7.3RQCh. 9 - Prob. 9.7.5RQCh. 9 - Prob. 9.7.6PACh. 9 - Prob. 9.7.8PACh. 9 - Prob. 9.7.9PACh. 9 - Prob. 9.1RDECh. 9 - Prob. 9.5RDECh. 9 - Prob. 9.7RDECh. 9 - Prob. 9.10RDECh. 9 - Prob. 9.11RDECh. 9 - Prob. 9.1CTECh. 9 - Prob. 9.2CTE
Knowledge Booster
Similar questions
- Briefly explain in a paragraph or two why you would rather be a borrower during a period of unexpected rising inflation, and a lender during a period of unexpected declining inflation.arrow_forwardDescribe what is the Specific inflation rate? Give an example?arrow_forwardWhy does inflation have a positive effect on the nominal interest rate?arrow_forward
- Do you think a negative nominal interest rate can happen? What about a negative real interest rate? Explain.arrow_forwardWhat are the results when inflation decreasesarrow_forwardThe following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1971 to 1975. (All rates rounded to the nearest 0.1 percent.) Year 1971 1972 1973 INTEREST RATE (Percent) 1974 1975 8.0 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. 7.0 On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 6.0 5.0 4.0 3.0 2.0 1.0 0 -1.0 + -2.0 -3.0 Nominal Interest Rate (Percent) 4.5 4.5 7.2 1970 OOOO O 1971 O 1972 O 1973 8.0 O 1974 6.1 1971 O 1975 Inflation Rate (Percent) 4.2 3.3 6.3 11.0 9.1 1972 1973 YEAR 1974…arrow_forward
- What is the difference between the Nominal Interest Rate and the Real Interest rate?arrow_forwardIf the U.S. Fed announces to raise the interest rate (i.e. discount rate) by 1% by the end of 2021, what do you expect the impact on the current U.S. inflation? Please explain briefly in the language of macroeconomics.arrow_forward
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