Suppose you borrow $1,000 of principal that must be repaid at 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? 1% b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? O Debtor O Creditor

Suppose you borrow $1,000 of principal that must be repaid at 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? 1% b. What is the real value of the principal repayment? c. Who loses, the debtor or the creditor? O Debtor O Creditor

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 37P: Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time...

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Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of 20,000. However, if the inflation rate is 6 per year, how much buying power will that 20,000 have when measured in todays dollars? Hint: Start by calculating the rise in the price level over the 16 years.
QUESTION 10 If prices grow by 2.9% every year, over 9 years, what is the total inflation rate? Write the answer in percent terms with up to two decimals (e.g., 10.22 for 10.22%, or 2.33 for 2.33%).
Interest RatesSuppose that you make a loan of $1,500 to your friend at a rate of 10% interest because you expect the inflation rate to be 5%.a) By how much does your purchasing power increase once the loan is completely paid off?b) Assuming that after the loan was repaid, you discovered that inflation rate over the life of the loan was only 2%. Who gained?
Sally will earn $30,000 this year and $40,000 next year. The real interest rate is 20% between this year and next year; she can borrow or lend at this rate. She has no wealth at the start of this year and plans to finish next year having consumed everything she possibly can. She would like to consume the same amount this year as next year. The inflation rate is 0%. (a) How much should Sally save this year? How much will Sally consume in each of the two years? (b) How would your answers change if the real interest rate was 40% ?
You lend $1,012 to a friend and he agrees to pay you back next year plus he will pay you interest of 7.25%. If the inflation rate is 2.18%, then in real terms how much extra money will you have after your friend pays you back? Enter a number rounded to two decimal places with no other characters.
QUESTION 9 If total inflation over 18 years is 17.3%, what is the annual inflation rate? Write the answer in percent terms with up to two decimals (e.g., 10.22 for 10.22%, or 2.33 for 2.33%).
Study the associated figure. Adjusted for inflation, during which years during the period shown did the lowest gasoline prices occur? A) Gas was cheapest in 1998 - 1999 because the graph shows that the actual price of a gallon of gas was at its lowest in that time period. B) Gas was cheapest in 1998 - 1999 because the graph shows that the price of a gallon of gas in 2016 dollars was at its lowest in that time period. C) Gas was cheapest in 1980 - 1982 because the graph shows that the price of a gallon of gas in 2016 dollars was at its lowest in that time period. D) Gas was cheapest in 1950 - 1952 because the graph shows that the price of a gallon of gas in 2016 dollars was at its lowest in that time period.
Over the last 10 years, the average rate of inflation has been 1.61%. what is the purchasing power of a dollar today in terms of what a dollar could purchase in 2008?
Suppose Neha is a cinephile and buys only movie tickets. Neha deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. Initially, the purchasing power of Neha's $3,000 deposit is movie tickets. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Neha's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Neha will not buy…
Suppose Cho is a cinephile and buys only movie tickets. Cho deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. Initially, the purchasing power of Cho's $3,000 deposit is 200 movie tickets. When the rate of inflation is equal to the interest rate on Cho's deposit, the purchasing power of her deposit __________over the course of the year. Select one of the following: A. Rises B. Remains the Same C. Falls
Goods costing $27.10 at the beginning of the year 1940 cost $176.52 at the beginning of the year 1979. Find the average annual inflation rate over this time period. Express your answer the nearest thousandth of a percent.
Assume the nominal rate of return is 8.63% and the real rate is 4.68%. Find the inflation rate of return using the exact formula.