Exam 6: Real Interest Rates

According to the Fisher hypothesis, if the real interest rate is 5 percent and the inflation rate rises from 2 percent to 4 percent, then the nominal interest rate will _____percentage points and the real interest rate will change by ______percentage points.

One way that homeowners and banks can share the risk of inflation is through

Suppose that a change in the expected inflation rate leads supply and demand to adjust so that the expected real interest rate is unchanged at 3.0 percent.The tax rate is 30 percent.Initially, the expected inflation rate is 3.0 percent.If the expected inflation rate falls from 6 percent to 0 percent, the after-tax expected real interest rate

$\text { Suppose you buy an inflation-indexed bond that will adjust with inflation and thus pay you } \$ 1,500 \text { in real (inflation- }$ adjusted) terms in one year.The nominal interest rate is 4 percent and the expected inflation rate is 2 percent.What is the present value of the bond? (Round off your answer to the nearest dollar and pick the answer closest to the one you calculate.)

Suppose that a change in the expected inflation rate leads supply and demand to adjust so that the after-tax expected real interest rate is unchanged at 2.0 percent.The tax rate is 30 percent.Initially, the expected inflation rate is 3.0 percent.If the expected inflation rate rises from 3 percent to 6 percent, the nominal interest rate

If actual inflation was 4 percent over the past year and you owned a one-year bond that paid 6 percent interest, what was your after-tax realized real interest rate if your tax rate was 15 percent?

For every dollar's worth of goods and services bought today, the amount of money it will take in N years to buy the same amount of goods and services when the average future inflation rate is p^eis called the______ .

If your after-tax realized real interest rate was 1 percent over the past year and the inflation rate was 3 percent, what was the nominal interest rate on your one-year bond if your tax rate was 15 percent?

If the nominal interest rate was 4 percent, the expected real interest rate was 3 percent, and the realized real interest rate was 5 percent, then the expected inflation rate was ______and the realized inflation rate was_____ .

One year ago, you bought a bond for $40,000.Today, you received the $40,000 principal back plus an interest of $2,000.If the inflation rate over the last year was 3 percent, calculate your real return (Round off your answer to the nearest percentage point).

Suppose that a change in the expected inflation rate leads supply and demand to adjust so that the after-tax expected real interest rate is unchanged at 2.0 percent.The tax rate is 30 percent.Initially, the expected inflation rate is 3.0 percent.If the expected inflation rate falls from 6 percent to 0 percent, the nominal interest rate

In recessions, the short-term expected real interest rate usually

Suppose you bought an inflation-indexed security for $12,000 in January 2013 which pays an annual interest of 4 percent.If the value of the inflation index in January 2013 was 106 and its value in January 2014 was 105, what is the value of the inflation-adjusted principal?

If you expect inflation to be 3 percent next year and you buy a one-year bond paying 4 percent interest, what is your after-tax expected real interest rate if you face a tax rate of 30 percent?

One year ago, you bought a bond for $10,000.You received interest of $400 at the end of the year, as well as your $10,000 principal.If the inflation rate over the last year was 5 percent, calculate your real return.Show your work.

Another name for the expected real interest rate is the

If your after-tax realized real interest rate was 1 percent over the past year and you owned a one-year bond that paid 6 percent interest, what was the inflation rate if your tax rate was 15 percent?

The real interest rate is the nominal interest rate adjusted for expected or actual

From 1972 to 1974, the expected real interest rate on short-term bonds averaged about +2 percent, but the realized real interest rate averaged about −2 percent.The main reason for the difference was that

Describe how inflation interacts with the tax system to distort savings and thus affect investment.Is this problem more severe now or less severe than it has been in the prior 20 years? Why?