Homework Answers
Ethan would have benefited as a lender if the inflation was slower than his expectation and Calvin would have benefited if the inflation was higher than expected as a borrower. the answer is "B' none of them benefited.
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Calvin is borrowing money from Ethan. Calvin anticipates the inflation rate for the year will be...
JOY Question 10 (1 point) National saving is composed of: O private saving and government spending....
JOY Question 10 (1 point) National saving is composed of: O private saving and government spending. public saving and government transfers. private saving, government saving, and government spending. private saving and government saving. Save Question 9 (1 point) Calvin is borrowing money from Ethan. Calvin anticipates the inflation rate for the year will be 10%. Ethan expects it will be 7%. The actual inflation rate turns out to be 8% for the year. Which of the following statements is true?...
Macroeconomic Canadian education Chapter 4 Money and Inflation 65 The Real Cost of Borrowing and the...
Macroeconomic Canadian education
Chapter 4 Money and Inflation 65 The Real Cost of Borrowing and the Real Interest Rate In this exercise, we see why the real cost of borrowing is equal to the real interest rate. 5. Since a borrower's actual dollar payments are based on the nominal interest a. rate, it is sometimes difmicult to see why the real cost of borrowing is equal to the real interest rate. Consider a family that buys a new house for...
Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and expected inflation are equal to 5%.
6. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and expected inflation are equal to 5%. Complete the first row of the table by filling in the expected real interest rate and the actual real interest rate before any change in the money supply. Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 5% to...
9. Suppose that a borrower and a lender agree on the nominal interest rate to be...
9. Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then infla- tion turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower c. Inflation during the 1970s was much higher than most people had expected when the decade began. How did...
A borrower and a lender agree on a mortgage interest rate. If inflation turns out to...
A borrower and a lender agree on a mortgage interest rate. If inflation turns out to be less than expected A. the actual real interest rate will be less than the expected real interest rate. B. the actual nominal interest rate will be higher than expected. C. the actual nominal interest rate will be less than expected. D. the actual real interest rate will exceed the expected real interest rate.
During the last tax year you lent money at a nominal rate of 6 percent. Actual...
During the last tax year you lent money at a nominal rate of 6 percent. Actual inflation was 1.5 percent, but people had been expecting 1 percent. This difference between actual and expected inflation___ a) transferred wealth from the borrower to you and caused your after-tax real interest rate to be more than 0.5 percentage points higher than what you had expected. b) transferred wealth from you to the borrower and caused your after-tax real interest rate to be more...
If you lend money at a 12% nominal interest rate, but you expect inflation to be...
If you lend money at a 12% nominal interest rate, but you expect inflation to be 7% over the life of the loan, then you expect your purchasing power to grow at a rate of [1%. The real interest rate is negative when the nominal interest rate is If the nominal interest rate is 3% and the expected rate of inflation is 1%, then the real interest rate is ▼| the inflation rate. A. 2%. O B. 096. 3%. 1%....
5. Suppose in the United States economy, the rate of money growth for the current year is 8 percent, the velocity of mon...
5. Suppose in the United States economy, the rate of money growth for the current year is 8 percent, the velocity of money in circulation is constant, and inflation is expected to be about 2 percent over the current year. What is the short run economic growth rate? A) 16 percent B) 10 percent C) 8 percent D) 6 percent E) 4 percent 8. The fisher effect matters in terms of inflation given that A) borrowers agree to loan terms...
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual...
Suppose that velocity of money is constant, the expected inflation rate is equal to the actual inflation rate, and the expected real interest rate is 4%. Answer the following questions. Justify your answers. Does the quantity theory allow for money to be used for assets and risk diversification purposes? When the growth rate of money supply is 7% and the growth rate of real GDP is 3%, what is the nominal interest rate? Let the growth rate of money supply...
If Wiknam households expect higher inflation in the coming year, how might that effect Money Demand?...
If Wiknam households expect higher inflation in the coming year, how might that effect Money Demand? How would that affect the real interest rate, the nominal interest rate and actual inflation? (hint: use the chart that links money, prices and interests rates)
JOY Question 10 (1 point) National saving is composed of: O private saving and government spending. public saving and government transfers. private saving, government saving, and government spending. private saving and government saving. Save Question 9 (1 point) Calvin is borrowing money from Ethan. Calvin anticipates the inflation rate for the year will be 10%. Ethan expects it will be 7%. The actual inflation rate turns out to be 8% for the year. Which of the following statements is true?...
Macroeconomic Canadian education
Chapter 4 Money and Inflation 65 The Real Cost of Borrowing and the Real Interest Rate In this exercise, we see why the real cost of borrowing is equal to the real interest rate. 5. Since a borrower's actual dollar payments are based on the nominal interest a. rate, it is sometimes difmicult to see why the real cost of borrowing is equal to the real interest rate. Consider a family that buys a new house for...
9. Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then infla- tion turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower c. Inflation during the 1970s was much higher than most people had expected when the decade began. How did...
If you lend money at a 12% nominal interest rate, but you expect inflation to be 7% over the life of the loan, then you expect your purchasing power to grow at a rate of [1%. The real interest rate is negative when the nominal interest rate is If the nominal interest rate is 3% and the expected rate of inflation is 1%, then the real interest rate is ▼| the inflation rate. A. 2%. O B. 096. 3%. 1%....
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