For the first two blanks: your answer should include only numbers and a decimal. Do not include the %-sign. Round your answer to 1 decimal place if necessary. If the nominal interest rates is 6.6% and the expected real interest rate is 5.1%, then the expected inflation rate is equal to %. Suppose the actual inflation rate is equal to 1.2%. Then the actual real interest rate is equal to %. Relative to the expected inflation rate, the actual inflation rate is good for the but bad for the For both blanks, choose from: borrower, lender It is important that you type in your answers exactly as it appears in the options provided. Quercus is case-sensitive.

For the first two blanks: your answer should include only numbers and a decimal. Do not include the %-sign. Round your answer to 1 decimal place if necessary. If the nominal interest rates is 6.6% and the expected real interest rate is 5.1%, then the expected inflation rate is equal to %. Suppose the actual inflation rate is equal to 1.2%. Then the actual real interest rate is equal to %. Relative to the expected inflation rate, the actual inflation rate is good for the but bad for the For both blanks, choose from: borrower, lender It is important that you type in your answers exactly as it appears in the options provided. Quercus is case-sensitive.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter17: The Trade-off Between Inflation And Unemploy

Section: Chapter Questions

Problem 2TY

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The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
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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 Creditor
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u are considering the choice between investing $50,000 in a conventional 1-year bank CD offering an interest rate of 5% and a 1-year Inflation-Plus CD offering 1.5% per year plus the rate of inflation. Which is the safer investment? Can you tell which offers the higher expected return? If you expect the rate of inflation to be 3% over the next year, which is the better investment? Why? If we observe a risk-free nominal interest rate of 5% per year and a risk-free real rate of 1.5% on inflation-indexed bonds, can we infer that the market's expected rate of inflation is 3.5% per year？
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