How does higher expected inflation affect the required rate of return (ROR)?
Causes the ROR to decrease
Does not have an effect on the ROR
Causes the ROR to increase
The answer is
Causes the ROR to increase
Higher inflation will lead to an increase in the required rate of return
As required of return = risk premium+ inflation
How does higher expected inflation affect the required rate of return (ROR)? Causes the ROR to...
a. 29. What effects does a higher rate of return have on saving? A higher rate of return has an income effect that discourages saving and a substitution ef- fect that encourages saving. b. A higher rate of return has an income effect that encourages saving and a substitution ef- fect that discourages saving. c. A higher rate of return has income and substitution effects that both decrease saving. d. A higher rate of return has income and substitution effects...
Suppose that US inflation rate is higher than Japan’s inflation rate. How would this affect the exchange rate between the $ US and the yen?
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the policy reaction function, explain whether the Reserve bank will increase or decrease the interest rate? 2. Explain the effect of an increase in imports on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short run and the long run. Would this affect the potential output? Why/Why not? 3. Suppose capital in Country A increases from 100 in 2017...
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the policy reaction function, explain whether the Reserve bank will increase or decrease the interest rate? 2. Explain thee effect of an increase in imports on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short run and the long run Would this affect the potential output? Why/Why not? 3. Suppose capital in Country A increases from 100 in 2017...
1. If people expect higher inflation in the near future, the expected return on bonds rises/falls), and the demand for money (increases/decreases), leading to the rate of interest increasing/decreasing). 2. For the following questions, fill in the blanks below with: rises/falls/right/left/increase/decrease a. When real income increases, the demand curve for money shifts to the the interest rate _, everything else held constant. and b. A business cycle expansion increases income, causing money demand to interest rates to , everything else...
An investment’s rate of return (ROR), or return on investment (ROI), refers to the increase or decrease in the value of an investment relative to its cost. This return can be expressed either in dollar terms or as a percentage of the cost of the investment. Suppose a stock sells for $800 and pays no dividends. At the end of one year, the stock’s price decreases to $700. What is the dollar return on investment in this stock? -$100.00 –$0.12...
How does a higher beta affect WACC and why? How does a drop in the bond market effect WACC and why?
does the increase in the expected level of inflation lead to higher price expectations leading to the upward slope of the SRAS curve or cause firms to reduce output at every price level resulting in a leftward shift of SRAS
1. What does the interest rate represent? How would a period of high inflation affect interest rates? In your own words, what does the “real rate of interest” mean? 2. What are the three pieces that make up the returns on Treasury securities? The first term you explained above. Why is an investor compensated for the second and third terms? 3. Fill in the blanks for the following with either “higher” or “lower”: Bonds with higher levels of risk result...
How does the role of inflation affect decisions that you have to make? What is the unemployment rate in your local area and in your state? How does this compare to the national average and why is this rate so important to evaluate?