Question

Suppose the one year nominal interest rate is 3 percent and that the expected inflation is...

Suppose the one year nominal interest rate is 3 percent and that the expected inflation is equal to 4 percent. The price index over this one year period went from 218 to 223. Compare the ex-ante real rate of interest to the ex-post real rate of interest. Which real rate of interest would you more likely be willing to spend today and which real rate of interest would you more likely be willing to save and why?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Define inflation? compare and contrast the real rate of return, the nominal rate of return, and...
Define inflation? compare and contrast the real rate of return, the nominal rate of return, and the ex ante nominal rate of return, using either real-life examples or hypothetical examples.
Distinguish between the nominal rate and the real rate of interest. How does inflation affect the...
Distinguish between the nominal rate and the real rate of interest. How does inflation affect the real, ex post (after the fact) rate of return to investors?
3. Distinction Between Real and Nominal Interest Rates a. Distinguish between a nominal versus a real...
3. Distinction Between Real and Nominal Interest Rates a. Distinguish between a nominal versus a real interest rate. b. If a bond gives you a 4% nominal annual interest rate and the inflation rate over the year is 2%, what is the real ex post rate of return you receive? Real Rate You Receive _______________ c. If an investor wants a real rate of return of 2% and expects inflation to be 2% next year, what nominal rate should the...
Suppose Thad loans Alyssa $1000 for one year at 10% nominal interest rate (i = 10%)....
Suppose Thad loans Alyssa $1000 for one year at 10% nominal interest rate (i = 10%). The price of a cup of coffee is $2 and everyone expects it to cost $2.04 next year (π e = 2%). At the end of the year, Alyssa will repay $1100. a) Based on their expectations, how many cups of coffee are given up by Thad today? How many does he expect to be able to consume in one year? b) What is...
Suppose that the nominal rate of interest is 5% and the expected rate of inflation is...
Suppose that the nominal rate of interest is 5% and the expected rate of inflation is 2%. Whats is the expected real rate of interest according to Fisher? Calculate the after-tax expected real rate of assuming a 30% marginal tax rate. If inflation expectations increase by 2%, what will be the new nominal rate according to fisher? According to darby/feldstein? What should happen to bond prices and stock prices if the expected rate of inflation increase
Suppose you have a mortgage of $90,000. The expected inflation rate is equal to 3 percent...
Suppose you have a mortgage of $90,000. The expected inflation rate is equal to 3 percent and the nominal interest rate on the mortgage is 6 percent. Calculate the real interest rate on your mortgage: percent. (Enter your response as an integer.) Suppose you have a mortgage of $90,000. The expected inflation rate is equal to 4 percent and the real interest rate the mortgage is 4 percent. Calculate the nominal interest response as an integer.)
Suppose the inflation rate is expected to be 1.1 percent in the U.S. and 1.8 percent...
Suppose the inflation rate is expected to be 1.1 percent in the U.S. and 1.8 percent in South Korea in 2020. a.        If the nominal interest rate on the 10-year U.S. Treasury bond is 2.4 percent, what is the real interest rate on that instrument? b.        If the nominal exchange rate between the U.S. dollar and the South Korean Won is expected to fall by 5 percent by the end of the year, what is the change in...
Given the nominal interest rate of 13​% and the expected inflation of 15​%, then the value...
Given the nominal interest rate of 13​% and the expected inflation of 15​%, then the value of the real interest rate is ___ ? 2. With the real interest rate equal to 3​% and the expected inflation equal to 2​%, then the value of the nominal interest rate is___? 3. A lender prefers a (high or lower) real interest rate while a borrower prefers a (higher or lower) real interest rate higher lowreal interest rate.
If the nominal interest rate is 3.8 percent, and the real interest rate is 2.0 percent,...
If the nominal interest rate is 3.8 percent, and the real interest rate is 2.0 percent, then using the Fisher Equation, the expected inflation must be _______
Over the next year, the real interest rate is 2% and the expected inflation rate is...
Over the next year, the real interest rate is 2% and the expected inflation rate is 5%. A. What is the nominal interest rate on a one-year loan? B. Assume that the actual inflation rate turns out to be 3%, instead of 5%. • Who benefits, the lender or the borrower? • What is the realized real interest rate on this loan?