Question

Suppose that a person earns $75,000 now and anticipates a 4% raise next year. The current...

Suppose that a person earns $75,000 now and anticipates a 4% raise next year. The current nominal interest rate on savings is 5%. Prices are also expected to rise 2% next year.

In real terms, how much can the person consume next year in real terms if they currently spend $65,000 on goods & services?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500...
Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you $1,500 in real (inflation-adjusted) terms each year for the next five years, plus your real principal of $75,000 at the end of the fifth year. The nominal interest rate is 5 percent and the expected inflation rate is 3 percent. What is the present value of the bond? (Round to the nearest thousand dollars and pick the answer closest to the one you calculate.) A....
A consumer has nonhuman wealth equal to $100,000. She earns $40,000 this year and expects her...
A consumer has nonhuman wealth equal to $100,000. She earns $40,000 this year and expects her salary to increase by 5% in real terms each year for the following two years. She will then retire. The real interest rate is equal to 0% and is expected to remain at 0% in the future. Labor income is taxed at a rate of 25% This consumer's human wealth is $ (Round your response to the nearest whole number.) Her total wealth is...
14.) If total spending rises from one year to the next, then A the economy must...
14.) If total spending rises from one year to the next, then A the economy must be producing a larger output of goods and services. B goods and services must be selling at higher prices. C either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both. D employment or productivity must be rising. 13.) The U.S. Air Force pays a Turkish citizen $30,000 to work...
Suppose that the real money demand function is L(Y, r+πe)=0.01Yr+πe ,L(Y, r+πe)=0.01Yr+πe , where YY is...
Suppose that the real money demand function is L(Y, r+πe)=0.01Yr+πe ,L(Y, r+πe)=0.01Yr+πe , where YY is real output, rr is the real interest rate, and πeπe is the expected rate of inflation. Real output is constant over time at Y=150Y=150. The real interest rate is fixed in the goods market at r=0.05r=0.05 per year. Suppose that the nominal money supply is growing at the rate of 10% per year and that this growth rate is expected to persist forever. Currently,...
Question 1.) One-year Treasury securities yield 4.55%. The market anticipates that 1 year from now, 1-year...
Question 1.) One-year Treasury securities yield 4.55%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 5.7%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places. Question 2.) A Treasury bond that matures in 10 years has a yield of 5.25%. A 10-year corporate bond has a yield of...
1. You are pleased to see that you have been given a 5.95% raise this year....
1. You are pleased to see that you have been given a 5.95% raise this year. However, you read on the Wall Street Journal Web site that inflation over the past year has been 1.81%. How much better off are you in terms of real purchasing power? (Note: not to around any intermediate steps less than six decimal places) Your real purchasing power is ________% (round to two decimal) 2. If the rate of inflation is 5.8%, what nominal interest...
Suppose the inflation rate is expected to be 6.3% next year, 4% the following year, and...
Suppose the inflation rate is expected to be 6.3% next year, 4% the following year, and 3.5% thereafter. Assume that the real risk-free rate, r*, will remain at 1.55% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. Calculate the...
Caffieneland is a small country in Central America. The main product of the country is coffee,...
Caffieneland is a small country in Central America. The main product of the country is coffee, which is currently priced at $1.20 per cup. Inflation is expected to be 3% per year, and the nominal interest rate is 10% per year. A.) Calculate the real interest rate. B.) Suppose you wanted to borrow 1000 cups of coffee now, and pay back the loan next year. How many cups of coffee would you owe? What is the interest rate for this...
Suppose Mariposa, Inc.’s Sales are projected to grow by 20% next year. It has total assets...
Suppose Mariposa, Inc.’s Sales are projected to grow by 20% next year. It has total assets that grow proportionately with sales. Current total assets are $2 million and current total sales are $1 million. The only liabilities that change with sales are accounts payable, which are currently $300,000. The profit margin and dividend payout ratio are constant. The profit margin is 15 percent and the dividend payout ratio is 60 percent. Using the “percent of sales” approach, answer the following...
Suppose the inflation rate is expected to be 6% next year, 5% the following year, and 3% thereafter.
Suppose the inflation rate is expected to be 6% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r*, will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.Select the correct...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT