In the data from the text, we observe that countries with high inflation rates tend to...

In the data from the text, we observe that countries with high inflation rates tend to
have high nominal interest rates. What does this imply, if anything, about real interest
rates in countries with very high inflation rates?

Solutions

Expert Solution

Generally though, real rates are constant. But we cannot infer anything about real interest rates specifically as real interest rates=nominal rates-inflation rate

So, it can so happen that the increase in nominal rates offset the inflation rate keeping the real rate unchanged. Or it could happen that one increased more than the other. In that case, it is difficult to comment about real rates as the dominating variable would determine the direction of real rates.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

why developing countries have high rates of inflation?

Average inflation rates tend to be higher in countries that have relatively weak judicial systems and...

Average inflation rates tend to be higher in countries that have relatively weak judicial systems and property rights (remember chapter 1 and the importance of secure property rights?). Why do you think this is the case? Would you expect these countries to have higher or lower national debt? Why?

1.Why do countries with less independent central banks tend to have higher inflation rates? Is it...

1.Why do countries with less independent central banks tend to have higher inflation rates? Is it possible for the central banks to increase output and reduce unemployment in the long run? In the long run, is the German model a good one? Explain why or why not. 2. In your opinion, what are the top three challenges in the global economy we face in the near future?

1. If inflation is expected to be relatively low, then interest rates will tend to be...

1. If inflation is expected to be relatively low, then interest rates will tend to be relatively low, other things held constant. A. True B. False 2. Ms Parker found two opportunities of investment A (rate of return 3%, standard deviation 6%) and investment B (rate of return 8%, standard deviation 4%). Investment B is better than Investment A (hints: calculate each CV and then compare each other). A. True B. False 3. The larger the standard deviation is, the...

When we observe interest rates in the financial press, do we see nominal or real rates?...

When we observe interest rates in the financial press, do we see nominal or real rates? Suppose you are in the process of applying for a 30-year fixed-rate mortgage. Which rate is more relevant to you? Why? Now suppose you are planning to invest in a 30-year Treasury STRIPS. Which rate is more relevant to you? Why?

Economies with high growth rates tend to be those that increase their: a. government regulation. b....

Economies with high growth rates tend to be those that increase their: a. government regulation. b. resources. c. human capital. d. consumption.

Write as much as you know about Inflation rates from finance. How to analyze data from...

Write as much as you know about Inflation rates from finance. How to analyze data from inflation rates?

3. Discuss why countries with undervalued fixed exchange rates tend to experience inflationary expectations?

Faulkender and Smith (2016) find firms operating in countries with higher tax rates tend to use...

Faulkender and Smith (2016) find firms operating in countries with higher tax rates tend to use more debt. In years when tax rates are lower, firms are found to decrease leverage levels. Furthermore, they show firms in all countries borrow less than their full borrowing capacity. Requirement: Critically comment on these findings in relation to Modigliani–Miller (M&M) theory (with tax) by answering the following tow questions. . a) In what respect the above findings are consistent with the prediction of...

The world consists of two countries: Home and Foreign. We observe supply and demand curves in...

The world consists of two countries: Home and Foreign. We observe supply and demand curves in both countries: D= 50-25P and S=25P in Home D* = 200-25P* and S* = 25P-50 in Foreign a) Derive MD (import demand) and XS (export supply) curves. b) Graph MD and XS. Find the world equilibrium (price and quantity) under free trade. c) Suppose that importer imposes a tariff t = 2. Find the new prices in Home and Foreign. How will the volume...

Subjects