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Chapter 7: Q.7.4 (page 142)

Evaluate who loses and who gains from inflation and distinguish between nominal and real interest rates

Short Answer

Expert verified

Long term bond investors, retired people, credit card holders etc lose and stockholders and investors gain from inflation.

Step by step solution

01

introduction

Individuals who lose from inflation are - Long term bond investors, retired people, credit card holders etc.

Individuals who lose from inflation are - stockholders and investors etc.

02

explanation

The nominal interest rate is the rate of interest that doesn't represent inflation. It is the interest rate that is cited on stocks, securities and protections.

The real interest rate is the rate of interest that considers inflation. It is the real rate which is payable on stocks, securities and protections.

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Most popular questions from this chapter

Describe how price indexes are calculated and define the key types of price indexes

Explain how the U.S. government calculates the official unemployment rate

Suppose that in 2017, a typical U.S. student attending a state-supported college bought 10 textbooks at a price of 100\( per book and enrolled in 25 credit hours of coursework at a price of 360\) per credit hour. In 2018, the typical student continued to purchase 10 textbooks and enrol in 25 credit hours, but the price of a textbook rose to 110\( per book, and the tuition price increased to 400\) per credit hour. The base year for computing a "student price index" using this information is 2017. What is the value of the student price index in 2017? In 2018? Show your work.

This year's value of the economy's price index is 100, and people anticipate that next year's value will be 103. The current nominal interest rate is 5 per cent. What is the real interest rate?

During the course of a year, the labour force consists of the same 1,000 people. Employers have chosen not to hire 20 of these people in the face of government regulations making it too costly to employ them. Hence, they remain unemployed throughout the year. At the same time, every month during the year, 30 different people become unemployed, and 30 other different people who were unemployed find jobs.

a. What is the frictional unemployment rate?

b. What is the unemployment rate?

c. Suppose that a system of unemployment compensation is established. Each month, 30 new people (not including the 20 that employers have chosen not to employ) continue to become unemployed, but each monthly group of newly unemployed now takes two months to find a job. After this change, what is the frictional unemployment rate?

d. After the change discussed in part (c), what is the unemployment rate?
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