Question

In: Economics

The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is...

The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is 10%. The actual real interest rate is:

less than or equal to -5%

greater than -5% but less than or equal to 0%

greater than 0% but less than or equal to 5%

greater than 5% but less than or equal to 10%

greater than 10%

Solutions

Expert Solution

Correct Option: greater than 0% but less than or equal to 5%.

It is because real interest rate adjusted for inflation will be = 10% - 5% = 5%

while real interest rate adjusted for expected inflation will be = 10% - 10% = 0%

Therefore, actual real interest will lie between 0% to 5%.

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

5. If the annual real rate of interest is 5% and the expected inflation rate is...
5. If the annual real rate of interest is 5% and the expected inflation rate is 4%, the nominal rate of interest would be approximately A. 1%. B. 9%. C. 20%. D. 15%. E. 7%. 6. If the annual real rate of interest is 2.5% and the expected inflation rate is 3.7%, the nominal rate of interest would be approximately A. 3.7%. Page | 2 B. 6.2%. C. 2.5%. D. −1.2%. E. 4.3%. 7. You purchased a share of stock...
2. a. If the real interest rate is 5% and the (expected) inflation rate is 0%,...
2. a. If the real interest rate is 5% and the (expected) inflation rate is 0%, what will be the price of a risk free bond that matures in one year with a face value of $500? b. If the (expected inflation rate increases to 2%, what will the price of this bond be? c. Show this change (from a to b) in a graph of the bond market with the quantity of bonds on the horizontal axis and the...
10. If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then...
10. If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate? A. 11.5 percent B. 7.0 percent C. 4.5 percent D. 2.5 percent E. less than 2.5 percent 11. Which of the following statements is (are) correct? (x) In the U.S., from the early 1980s through the early 1990s, both inflation and nominal interest rates fell. (y) If a country had deflation, the nominal interest rate would be...
The real risk-free rate of interest is 3.1%.  Inflation is expected to be 5% this year and...
The real risk-free rate of interest is 3.1%.  Inflation is expected to be 5% this year and 6% during the next 2 years.  Assume that the maturity risk premiums is zero.  What is the yield on 1-year treasury securities? Write your answer as a percent (do not type the % character - if your answer is 8.8% write 8.8 in the answer).
If the real rate of interest is 2.1% and the expected inflation rate is 3.4%, then...
If the real rate of interest is 2.1% and the expected inflation rate is 3.4%, then what would be nominal interest rate? Select one: a. 5% b. 6% c. 5.57%
EXPECTED INTEREST RATE The real risk-free rate is 2.55%. Inflation is expected to be 2.75% this...
EXPECTED INTEREST RATE The real risk-free rate is 2.55%. Inflation is expected to be 2.75% this year, 4.25% next year, and 3.15% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round your intermediate calculations. Round your answer to two decimal places. %
The nominal rate of interest is 7% and the real rate of interest is 3%. What is the expected inflation rate?
The nominal rate of interest is 7% and the real rate of interest is 3%. What is the expected inflation rate?
If the nominal rate of interest is 13.02% and the real rate of interest is 8.01%, what is the expected rate of inflation?
If the nominal rate of interest is 13.02% and the real rate of interest is 8.01%, what is the expected rate of inflation?
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.)
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.)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT