If the nominal interest rate is 0.09 and the (expected) inflation rate is 0.03, what is...

If the nominal interest rate is 0.09 and the (expected) inflation rate is 0.03, what is the real interest rate? (Answer as a decimal.)

Consider an economy with only one good: corn. In 2010 the price of corn was 6.08 and in 2011 the price was 7.9. What was the inflation rate? (Answer as a decimal. Round to three decimal places.)

Let NGDP be 1,825 and the money supply be 474. What is velocity? (Round to one decimal place.)

Solutions

Expert Solution

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1. Real Interest Rate = Nominal Interest rate - Inflation rate

= 0.09 - 0.03

= 0.06 Real Interest Rate.

2. Inflation Rate = ( price index in current year - price index in base Year)/ price index in base year * 100

= 7.9 - 6.08/ 6.08* 100

= 29.9

decimal = 0.299

3. Velocity = NGDP/ Money supply

= 1.825/474

= 0.003

Rahul Sunny answered 1 year ago

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