Macroeconomics
21st Edition
ISBN: 9781259915673
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 18, Problem 3P
To determine
Growth rate of real GDP and inflation rate.
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ADVANCED: Assume the inflation rate is 100% per year and the nominal rate of interest is 700% per year. (This was also our apples example from Section 5.2.) Now, assume that there is also a 25% default rate. That is, 1 in 4 apples are returned with worms inside and will therefore not be sellable (and be worth $0). What is your real rate of return? What is the formula?
Please just do question 4 please
3) Suppose that on January 1, 2019 a bank lends $20,000 to a person. The bank and the individual both agree that the real interest rate charged on the loan should be 10% and the loan is going to be totally paid ($20,000 plus interest), in a one-time payment, on December 31, 2020. Suppose the two parties to this transaction can perfectly foresee what the inflation rate for this period is going to be. Given this information, what is the nominal rate the Bank has to charge on this loan? Assume that the CPI is computed at the beginning of each year.
According to US inflation data:
The historical average CPI for 2019 is - 255.657
The historical average CPI for 2019 is - 258.811
The inflation rate during the period is: (258.811/255.657 -1) *100 = 1.233%
Real Interest Rate = Nominal Interest Rate – Expected Inflation
Nominal Interest Rate = Real Interest Rate+ Expected Inflation
Nominal Interest Rate = 10% + 1.23%
Nominal Interest Rate…
QUESTION 19
The production and prices in a country in two subsequent years are described by the following table
Year 1
Year 2
Good
Apples
Oranges
Where x is $0.9 and y is $1.41. What is the inflation rate according to the CPI (using year 1 as the base year) in percent terms? (Submit your answer with up to two
decimals, i.e., -10.22 for -10.22% and 11.44 for 11.442%.)
Quantity
Price
$1.00
Quantity
Price
60
55
40
$1.00
45
y
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