Paul and Mary wanted to get married, and they wished to purchase a house for the new family. Therefore, they had arranged a meeting with a banker to know more about the mortgage details. They all expected that inflation will be 3 percent over the borrowing period, and the banker offered them a nominal interest rate of 6 percent. As it turns out, the inflation was 5 percent over the term of the loan.                                          a. What was the expected real interest rate?  b. What was the actual real interest rate?  c.  Who benefited and who lost because of the unexpected inflation?

Q: Work It Out In the country of Wiknam, the velocity of money is constant. Real GDP grows by 3 percent…

A: a. According to quantity theory of money  Growth rate of money stock + growth rate of velocity =…

Q: Describe what is the Specific inflation rate? Give an example?

A: Inflation rate: The term inflation refers to the average price rise over a certain period of time.…

Q: If Dave loans funds at 2 percent while the inflation rate is 4 percent, his real rate of interest is…

A: Nominal Interest Rate(i) is the percentage(%) increase in money that borrower pays without taking…

Q: 2.3 (Inflation and Interest Rates) Using a demand-supply diagram for loanable funds (like Exhibit…

A: The loanable funds theory is a neoclassical model that defines how interest rate is determined in…

Q: 1-Which of the following is an example of frictional unemployment? A mother who has gone back to…

A: Let's first learn about frictional unemployment. It is a type of Economy which can even take place…

Q: True or false? The nominal rate of interest is the difference between the real rate and the…

A: Nominal interest rate is the interest rate which is stated in loan agreement . It is the rate of…

Q: to replace higher cost goods with lower cost goods.

A: In a fixed weight price index,the quantities or weights tend to remain fixed and any change in the…

Q: true/false, explain There are an infinite number of combinations of real interest rates and…

A: True

Q: What are the impacts of inflation for borrowers and savers

A: The impact of inflation on borrowers: It permits the borrowers to pay back the money, whose value…

Q: Suppose that the nominal rate of interest is 7% and the expected inflation rate is 3%. According to…

A: Fishers’ equation considers that the money supply and the price level lies equal and proportional to…

Q: The real interest rate is 6 percent a year and the income tax rate is 50 percent. With no inflation,…

A: After tax return before inflation = Nominal return ×(1-tax rate)= 6% × (1-50%)=0.03=0.03×100=3%

Q: In which of the following situations is it least advantageous to be lending?   Select one: A. The…

A: Answer: When the real interest rate will be the lowest the lending will be the least advantageous.…

Q: Suppose you take out a multi-year loan from a bank with an intrest rate of 5%. a. The rate you are…

A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: write an equation that defines the real interest rate. use the equation to explain why unexpectedly…

A: The debtor is the person or entity who owes money and on the other hand, the creditor is the person…

Q: 20.Which of the following statements is correct?   a The interest rate that is usually reported is…

A: c If the nominal interest rate has decreased and the real interest rate has also decreased,…

Q: Assume you just deposited $1,000 into a bank account. The current real interest rate is 3% and…

A: A real interest rate is adjusted to remove the effects of inflation while a nominal interest rate…

Q: For each of the following years, determine the real interest rate. Find the difference between this…

A: Please find the answer below.

Q: Question 18   You borrow money for a new car at a rate of 5%; inflation is at 4%. From this…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: 4. Inflation can redistribute wealth between borrowers and savers. Consider the following four…

A: Inflation is an abnormal increase in the general price level of the economy. As a result, too much…

Q: From the data in the table below, what was the rate of inflation for the year ended December 2009?…

A: The Consumer Price Index refers to the measure of the average change over time in the prices paid by…

Q: How might a rapid rise in inflation harm you?  How might a rapid rise in inflation help you?  In…

A: Inflation refers to a rise in the prices of goods and services in an economy during a year. This…

Q: Assume you just deposited $1,000 into a bank account. The current real interest rate is 2%, and…

A: The relation b/w the nominal & real interest rate, as well as inflation, is represented by the…

Q: Suppose that at the start of 1999, Ari invests their money in a savings account earning 3.6%…

A: Real interest rate = Nominal interest rate-rate of inflation

Q: The nominal interest rate is equal to ? (a).Real interest +inflation (b). Real interest *inflation…

A: Answer - "Thank you for submitting the question, We are authorized to answer one question at a time,…

Q: If you deposit money in the bank for one year scenario 1: nominal interest rate = 10%, inflation…

A: For the deposit, the growth is more when the real interest rate is higher. This implies when there…

Q: If the nominal interest rate is 5 percent and the inflation rate is 2 percent, what is the real…

A: Nominal interest rate is the rate of interest before the adjustments of inflation. given: Nominal…

Q: Suppose you took out 20,000 in student loans at a fixed interest rate of 5%. Assume that after you…

A: Inflation is the rise in general price level where a unit of currency could purchase less than it…

Q: 1. Currently the prime interest rate, which is the interest rate given to customers with the best…

A: a. Given  Nominal Interest Rate = 3.25%  Inflation Rate = 1.3% Real Interest Rate = Nominal Interest…

Q: Assume the economy is experiencing low and stable inflation, averaging 2% a year. Nadia loans her…

A: Nominal interest rate = real interest rate + Expected inflation rate 5 % = real rate + 2 % Real rate…

Q: Suppose in 2017​, the United Kingdom economy was at full employment.   Nominal GDP was ​£2,665…

A: Macroeconomics is a part of economics that deals with production, decision and allocation concerning…

Q: If the economy is currently at full employment, at what level should the central bank set the…

A: *Answer:  Given, Inflation rate = 6% targeted inflation rate = 3% α = β = 0.5 and r* = 2% 1) If…

Q: Given a nominal interest rate of 5 percent, in which of the following cases would you earn the…

A: Nominal interest rate: A nominal interest rate refers to the estimation of interest rate without…

Q: Suppose the inflation premium is 2 percent and the nominal interest rate is 1 percent. a. What is…

A: Given Inflation premium = 2 % Nominal interest rate= 1 %

Q: Assume the expected rate of inflation is 3 percent per year.  What nominal interest rate should you…

A: Real interest rate refers to the interest rate that adjusted with the inflation. Real interest rate…

Q: Assuming the nominal interest rate is positive, ceteris paribus, which of the following statements…

A: We know: Real Interest Rate = Nominal Interest Rate - Inflation This means how much are we earning…

Q: describe in details ,a situation,either a government policy situation ,an economic problem,or a…

A: Real values are the nominal values adjusted for the price change or inflation.

Q: Suppose that the nominal rate of interest is 6 percent and the inflation premium is 1 percent. What…

A: Real interest rate is adjusted for inflation.

Q: Suppose that in the country of Eurasia, the velocity of money is constant. Real GDP grows at a rate…

A: Given The velocity of money is constant, Real GDP growth rate = 2% Money stock growth rate =8%…

Q: Initially, the purchasing power of Frances's $2,000 deposit is comic books. For each of the annual…

A: The initial purchasing power can be calculated as follows: Thus, the initial purchasing power is…