Under the Fisher hypothesis, if a one point increase in the inflation rate is anticipated:
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Under the Fisher hypothesis, if a one point increase in the inflation rate is anticipated:
According to the Fisher effect, an increase in the inflation rate would increase nominal interest ates" O True O False QUESTION 33 Economists believe that the classical dichotomy separating real from nominal variables holds in the long-run. True False QUESTION 3 Assume the economy only produces basketballs. There is a money supply of $1000. The economy produces 50 basketballs that sell for $40 each. What is nominal GDP and money velocity? "Nominal GDP = $50, velocity = 0.5" "Nominal GDP...
This Question: 1 pt 1 of 10 (2 complete) The Bank of Canada and the government of Canada have agreed that the Bank will achieve an inflation rate target. Suppose Parliament legislated interest rate changes. How would you expect the policy choices to change? The most likely result in the short run would be In the long run, the inflation rate would A. an increase in money growth and falling interest rates; fall and nominal interest rates would fall further...
If the rate of inflation increases from 3% to 6%, we would most likely expect that nominal interest rates will remain unchanged and the real interest rate will increase by 3%. nominal interest rates will increase by 6% and the real interest rate will fall by 3%. nominal interest rates will remain unchanged and the real interest rate will also remain unchanged as the risk of default will most likely increase. nominal interest rates, real interest rates and risk of...
25. If you negotiated a salary based on an anticipated inflation rate of 4 percent, and the actual inflation rate turned out to be 6 percent a. the purchasing power of your real wages would be more than you anticipated. b. your employer would have gained at your expense. c. your real wage will increase, but your nominal wage will decrease. d. the purchasing power of your wages will not change, since purchasing power is based on your nominal wage....
You observe that the inflation rate in the United States is 1.9
percent per year and that T-bills currently yield 2.4 percent
annually. Use the approximate international Fisher effect to answer
the following questions.
a.
What do you estimate the inflation rate to be in Australia, if
short-term Australian government securities yield 4 percent per
year? (Enter your answer as a percent rounded to 1 decimal
place, e.g., 32.1.)
b.
What do you estimate the inflation rate to be in...
Which of the following statements is correct? If expected inflation increases, interest rates are likely to decrease. If individuals in general increase the percentage of their income that they save, interest rates are likely to decrease. If companies have fewer good investment opportunities, interest rates are likely to increase. Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities. Interest rates on long-term bonds are...
A write-down of assets by a commercial bank results in a. Fewer liabilities b. Greater net worth c. A loss of net worth d. None of the above Clearinghouses are used a. In conducting the business of ECNs b. By specialist systems in executing trades c. In the process of making payments using transaction deposits where more than one bank is involved d. In routing orders to over-the-counter markets More risk of holding bonds will a. Lower their yields b....
Question 35 If the money supply growth rate permanently increased from 4 percent to 10 percent, what would we expect to happen to the inflation rate and the nominal interest rate? Both the inflation rate and the nominal interest rate would increase by less than 6 percent. The inflation rate would increase by 6 percent, and the nominal interest rate would increase by less than 10 percent. The inflation rate would increase by less than 6 percent, and the nominal interest rate would increase...
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...
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...