Homework Answers
Ans. :-
If Inflation rises by 8% :-
- Expected real yield on money and non money assets Increase and demand for money Increases.
If inflation rose by 7% :-
- Expected real yield on money and non money assets Rise by 1 Percent and demand for money Increases.
If yield on non money assets rose by 9% :-
- Return to alternative investment relative to return on money Rise,regardless of level of inflation. This Increases Portfolio demand for money.
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Suppose that expected inflation rises by 8 percent at the same time that the yields on...
1. If people expect higher inflation in the near future, the expected return on bonds rises/falls), and the deman...
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...
Assume that the expected inflation of India is 8 percent while the expected inflation in United...
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Question 5 [10 points] If inflation rises from 6 to 8 percent, what happens to real...
Question 5 [10 points] If inflation rises from 6 to 8 percent, what happens to real and nominal interest rates according to the Fisher effect?
Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0
Suppose there are three assets: A, B, and C. Asset A’s expected return and
standard deviation are 1 percent and 1 percent. Asset B has the same expected
return and standard deviation as Asset A. However, the correlation coefficient of
Assets A and B is −0.25. Asset C’s return is independent of the other two assets.
The expected return and standard deviation of Asset C are 0.5 percent and 1
percent.
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8. You buy stock and its price rises at a rate of five percent. Inflation for...
8. You buy stock and its price rises at a rate of five percent. Inflation for the same period rises at a rate of five percent. Before taxes you made A. a nominal and real loss, but you pay taxes on the real loss. B. a nominal and real gain, and you pay taxes on the nominal gain. C. a nominal and real gain, but you pay taxes only on the real gain. D. a nominal gain, but no real...
B) 5 pend an anual interest payment of $25, the interest rate is B) 5 percent....
B) 5 pend an anual interest payment of $25, the interest rate is B) 5 percent. 31) 31) If D) 10 percent A) 2.5 percent a price of $500 and an annual interest C)7.5 percent. 32) 32) If the interest rates on all bonds rise from 5 would you prefer to have been holding? B) a bond with ten years to maturity with one year to maturity percent over the course of the year, which bonc A) a bond with...
Suppose the real rate is 8 percent and the inflation rate is 1.6 percent. What rate...
Suppose the real rate is 8 percent and the inflation rate is 1.6 percent. What rate would you expect to see on a Treasury bill? O11.19% 9.73% 8.76% 8.27 % 10.70% QUESTION 2 If expected return is less than required return on an asset, rational investors will A sell the asset, which will drive the price up and cause the expected return to reach the level of the required return O B. sell the asset, which will drive the price...
Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as...
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Illustrate and briefly explain the beginning of a demand-pull inflation. 3. When answering parts a and b,...
Illustrate and briefly explain the beginning of a demand-pull inflation. 3. When answering parts a and b, draw the relevant Phillips curve. Using a short-run Phillips curve, what is the effect on the unemployment rate if the inflation rate unexpectedly rises. Using a long-run Phillips curve, what is the effect on the unemployment rate if the inflation rate rises and people expect the rise. Explain how your answer to part a about the unexpected rise in the inflation rate changes in...
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...
Assume that the expected inflation of India is 8 percent while the expected inflation in United Kingdom is 2 percent. Suppose that international capital flows equalize the real interest rates in the two countries and that purchasing-power parity holds so that the nominal exchange rate remains the same. Taking India's perspective, what is the expected change (as a number in percentage terms) in the real exchange rate between the British Pound and the Indian Rupee? Give your answer as a...
B) 5 pend an anual interest payment of $25, the interest rate is B) 5 percent. 31) 31) If D) 10 percent A) 2.5 percent a price of $500 and an annual interest C)7.5 percent. 32) 32) If the interest rates on all bonds rise from 5 would you prefer to have been holding? B) a bond with ten years to maturity with one year to maturity percent over the course of the year, which bonc A) a bond with...
Suppose the real rate is 8 percent and the inflation rate is 1.6 percent. What rate would you expect to see on a Treasury bill? O11.19% 9.73% 8.76% 8.27 % 10.70% QUESTION 2 If expected return is less than required return on an asset, rational investors will A sell the asset, which will drive the price up and cause the expected return to reach the level of the required return O B. sell the asset, which will drive the price...
Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 6%, and potential output is $50 trillion. Use the orange points (square symbol) to draw the aggregate supply curve in...
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