1a.Suppose that inflation in an economy is currently 2%. Assume that there is a zero lower...
1a.Suppose that inflation in an economy is currently 2%. Assume that there is a zero lower bound on nominal interest rates. Accordingly, the lowest the real interest rate can be is (enter your answer as a number. For example, if your answer is 5%, just enter 5. If negative, make sure to place the minus sign in front).
b.Suppose that an economy is currently experiencing deflation of 2%. Assume that there is a zero lower bound on nominal interest rates. Accordingly, the lowest the real interest rate can be is (enter your answer as a number. For example, if your answer is 5%, just enter 5. If negative, make sure to place the minus sign in front).
c.Suppose the economy is in a liquidity trap. True or false. A fiscal contraction will not have any effect on the nominal interest rate, though a fiscal expansion may have an effect on the nominal interest rate.
d.true or false. The interest rate advertised and charged by banks to consumers (like if you get a car loan or a mortgage) is the real interest rate (not the nominal interest rate).
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1a.Suppose that inflation in an economy is currently 2%. Assume
that there is a zero lower...
Suppose that inflation in an economy is currently 2%. Assume that there is a zero lower...
Suppose that inflation in an economy is currently 2%. Assume that there is a zero lower bound on nominal interest rates. Accordingly, the lowest the real interest rate can be is (enter your answer as a number. For example, if your answer is 5%, just enter 5. If negative, make sure to place the minus sign in front).
Suppose that an economy is currently experiencing deflation of 2%. Assume that there is a zero...
Suppose that an economy is currently experiencing deflation of 2%. Assume that there is a zero lower bound on nominal interest rates. Accordingly, the lowest the real interest rate can be is (enter your answer as a number. For example, if your answer is 5%, just enter 5. If negative, make sure to place the minus sign in front).
In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the...
In 2009, the U.S. economy was in a severe recession. The Federal Reserve had lowered the federal funds rate to about 0 percent, but still wanted to stimulate the economy more. The inflation rate in 2009 was about –1%, but households’ and businesses’ inflation expectations for the upcoming year were higher and positive, about 1.5%. a) First, do households’ and businesses’ investment demand depend on the ex ante or ex post real interest rate? Briefly explain why. b) Draw an...
Determine if each statement is true or false. True False Answer Bank Borrowers gain when inflation...
Determine if each statement is true or false. True False Answer Bank Borrowers gain when inflation is lower than expected, If inflation is higher than the nominal interest rate, the real interest rate is negative Loan contracts specify the nominal interest rate, Real interest rates will never go negative. Lenders gain when inflation is lower than expected,
Compared with higher inflation rates, a lower inflation rate will (Increase or Decrease?) the after-tax real...
Compared with higher inflation rates, a lower inflation rate
will (Increase or Decrease?) the after-tax real
interest rate when the government taxes nominal interest income.
This tends to (Encourage or Discourage?) saving,
thereby (Increasing or Decreasing) the quantity of
investment in the economy and (Increasing or Decreasing) the
economy's long-run growth rate.
Attempts: Keep the Highest: /2 8. Inflation-induced tax distortions Jacques receives a portion of his income from his holdings of interest-bearing government bonds. The bonds offer a real...
10.When monetary policy is constrained by the Zero Lower Bound, the economy risks entering a deflationary...
10.When monetary policy is constrained by the Zero Lower Bound, the economy risks entering a deflationary spiral because real interest rates no longer react to aggregate demand shocks. declines in inflation imply increases in real interest rates, which in turn lead to further declines in aggregate demand and thus inflation. aggregate supply becomes downward sloping. All of the above.
2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent...
2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent 16 14 Nominal Real 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Year Figure 2: Real and nominal interest rates in the US, 1960-2015 1. State the Fisher equation. What do the three variables in Fisher's equation represent? 2. Consider Figure 2. Why do negative real interest rates occur? Are they a problem for the economy? 3. In Figure 2,...
Suppose that currently nominal interest rates, inflation, and expected inflation are all 2% right now. a)...
Suppose that currently nominal interest rates, inflation, and expected inflation are all 2% right now. a) Suppose the Federal Reserve increases interest rates in the economy. Draw a well labeled supply and demand diagram that shows how they typically would do that and how it affects the supply & demand in the money market and bond market. b) Suppose that when the Federal Reserve takes this action and expected inflation decreases from 2% to 1%. Show the effect of this...
10 H ) Policy makers have changed their focus from keeping inflation from getting too high...
10 H ) Policy makers have changed their focus from keeping inflation from getting too high to keeping inflation from getting too low because historically there has been asset deflation and now there is asset inflation. during the financial crisis of 2008 there was asset deflation which can lead to overall deflation. technology has changed the structural economy so much that asset inflation is no longer a concern. during the financial crisis of 2008 there was asset deflation which can...
Suppose that currently nominal interest rates, inflation, and expected inflation are all 2% right now Suppose...
Suppose that currently nominal interest rates, inflation, and expected inflation are all 2% right now Suppose the Federal Reserve increases interest rates in the economy. Draw a well labeled supply and demand diagram that shows how they typically would do that and how it affects the supply & demand in the money market and bond market. Suppose that when the Federal Reserve takes this action and expected inflation decreases from 2% to 1%. Show the effect of this change in...
Determine if each statement is true or false. True False Answer Bank Borrowers gain when inflation is lower than expected, If inflation is higher than the nominal interest rate, the real interest rate is negative Loan contracts specify the nominal interest rate, Real interest rates will never go negative. Lenders gain when inflation is lower than expected,
Compared with higher inflation rates, a lower inflation rate
will (Increase or Decrease?) the after-tax real
interest rate when the government taxes nominal interest income.
This tends to (Encourage or Discourage?) saving,
thereby (Increasing or Decreasing) the quantity of
investment in the economy and (Increasing or Decreasing) the
economy's long-run growth rate.
Attempts: Keep the Highest: /2 8. Inflation-induced tax distortions Jacques receives a portion of his income from his holdings of interest-bearing government bonds. The bonds offer a real...
2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent 16 14 Nominal Real 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Year Figure 2: Real and nominal interest rates in the US, 1960-2015 1. State the Fisher equation. What do the three variables in Fisher's equation represent? 2. Consider Figure 2. Why do negative real interest rates occur? Are they a problem for the economy? 3. In Figure 2,...
Suppose that currently nominal interest rates, inflation, and expected inflation are all 2% right now Suppose the Federal Reserve increases interest rates in the economy. Draw a well labeled supply and demand diagram that shows how they typically would do that and how it affects the supply & demand in the money market and bond market. Suppose that when the Federal Reserve takes this action and expected inflation decreases from 2% to 1%. Show the effect of this change in...
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