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(Minimum of 100 Words).
Determine how the following situations will affect the nominal interest rate levels: a. There is the anticipated higher government budget deficit.
b. The expected inflation in the coming months is high.
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- 14. If the nominal interest rate is 8% and the inflation rate is 3%, the real interest rate A) 11% B) 5% C) -5%. D) 8/3 = 2.67% E) cannot be determined from the information given %3!6. Assume that the inflation rate will be 4% for all future years, and the interest rate is 7%. How many years will it take for the dollar to have the purchasing power that is equal to 65% of itscurrent purchasing power? (select the closest answer)a) about 7 yearsb) about 11 yearsc)about 18 yearsd) about 20 yearsQuestion 4 1. Suppose you have $200,000 in a bank term account. You earn 5% interest per annum from this account. You anticipate that the inflation rate will be 4% during the year. However, the actual inflation rate for the year is 6%.Calculate the impact of inflation on the bank term deposit you have andexamine the effects of inflation in your city of residence with attention to food and accommodation expenses.
- Suppose you borrow $1,000 of principal that must be repaid t the end of two years, along with interest of 5 percent a year. If the annual inflation rate turns out to be 10 percent, Hint: Future value = Present value x (1 + Growth in prices), where t is the number of years evaluated. Real value of loan repayment Amount of loan x (1 + Real interest rate) Instructions: Round your responses to the nearest whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. What is the real rate of interest on the loan? % b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? Debtor O CreditorInflation and interest rates a) Define/explain the consumer price index. b) Suppose that the nominal interest rate is 6.5% per year and you borrow $200. How much money will you have to repay in a year? c) Suppose that the nominal interest rate is again 6.5% and inflation is 1%. What is the real interest rate? d) Now suppose that the nominal interest rate is 1% and the inflation rate is 1.5%. What is the real interest rate? Would you like to be a lender or a borrower in this case? Why? Please explain/show how to do the calculations5. Calculate the one-year real rate of interest faced by the U.S. government given that expected inflation is now 1.68%/year (Source: FRB-Cleveland) and the nominal one- year U.S. Treasury rate is 0.15% (Source: Investing.com).
- 17) The inflation rate for the current year is measured by which equation? (...using the CPI = consumer price index) 18) A country's consumer price index (CPI) was 150 last year, and this year it is 170. What is its inflation rate for this year? 19) Suppose that the consumer price index (CPI) was 140 in 2017 and 147 in 2018. What was the country's inflation rate during this time? 20) Refer to the following graph to answer the next question. European Union (EU) and US inflation - Selected Years Data based on OECD estimates Rate of Inflation 14% 12% 10% 8% 6% US 2% 0% 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 929394959697 Years (1970-1997) Is there a relationship between US inflation and EU inflation? 14% 12% 10% 8% 2% 0%Refer to Table 3. Assume that this economy produces only two goods Good X and GoodY. If year 1 is the base year, the value for this economy’s inflation rate between year 1 andyear 2 isA) -6.1%.B) -5.5%.C) 6.5%.D) 79%.4. In which of these situations is the real interest rate NEGATIVE? A) The nominal interest rate is 3% and the inflation rate is 4% B) The nominal interest rate is -5% and the inflation rate is -6% C) The nominal interest rate is 2% and the inflation rate is -1% D) The nominal interest rate is 4% and the inflation rate is 4%
- 1) If the expected inflation rate is negative A) the real interest rate is less than the nominal interest rate. B) the real interest rate is negative. c) the real interest rate is greater than the nominal interest rate. D) the nominal interest rate must be equal to the real interest rate. E) none of the above12. Suppose the inflation rate of a country in 2009 was 13%. If a dress cost $125 at the beginning of the year, how much would it cost at the end of the year?Your rich aunt is going to give you an end-of-year gift of $1,000 for each of the next 10 years. Solve, a. If general price inflation is expected to average 6% per year during the next 10 years, what is the equivalent value of these gifts at the present time? The real interest rate is 4% per year. b. Suppose that your aunt specified that the annual gifts of $1,000 are to be increased by 6% each year to keep pace with inflation. With a real interest rate of 4% per year, what is the current PW of the gifts?