The Fisher Effect describes the relationship between changes in: a) Inflation and unemployment b) Interest rates and investment c) Nominal interest rates and inflation d) Real interest rates and savings

Suppose John Smith signs up to a fixed- interest mortgage. Then there is some unexpected inflation and following this John Smith spends less on consumption (in real terms). For simplicity, note that his wages have been indexed for inflation so that his real take-home wage has remained constant. Explain this fall in consumption.

Consider an economy that lasts for two periods. A household receives nominal labour income Y1 = 100 in the first period and Y2 = 110 in the second period. The price level in the first period is P = 10 and in the second period it's P, = 11. The nominal interest rate i is 15%. Household chooses real consumption c1 and c2 (relative to price level in the first period) to maximise utility U(c1, c2) that exhibits the decreasing marginal rate of substitution property. 1. Calculate the inflation rate 7 and the real interest rate r. 2. Find the real consumption values for which the household neither saves, nor borrows. For all questions below assume that this is the optimal choice for the housheold. 3. Draw and describe analytically the set of feasible consumption choices. What is the marginal rate of substitution at the optimal choice? 4. Now assume that due to increase in risk premia, banks introduce a spread on interest rates, borrowers now pay ry = r + 1% and lenders get ri = r – 1% on…

The Fisher Effect equation can be used to determine the real interest rate. Use this equation to determine the answer to the following question. If the nominal interest rate is 0.090, and the inflation rate is 0.005, what is the real interest rate? 0.085 -0.085 Indeterminate. The real interest rate and the inflation rate are completely unrelated. 1.085 0.095 -0.0780

The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Eileen spends all of her money on paperback novels and mandarins. In 2015, she earned $27.00 per hour, the price of a paperback novel was $9.00, and the price of a mandarin was $3.00.   Which of the following give the nominal value of a variable? Check all that apply.   Eileen's wage is $27.00 per hour in 2015.   The price of a mandarin is $3.00 in 2015.   Eileen's wage is 3 paperback novels per hour in 2015.     Which of the following give the real value of a variable? Check all that apply.   Eileen's wage is 9 mandarins per hour in 2015.   The price of a paperback novel is 3 mandarins in 2015.   Eileen's wage is $27.00 per hour in 2015.     Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Eileen's wage has risen to $54.00 per hour. The price of a paperback novel…

Suppose I lend my friend Peter $100 for one year, and he agrees to repay me with interest. We each have an expectation that the inflation rate over the coming year will be 5 percent, and so we agree that he will pay me back at a nominal rate of 7 percent interest. a) What real rate of return do I expect to receive? b) What happens if inflation turns out to be 8 percent over the year? Who is made better off and who is made worse off? c) What happens if inflation turns out to be 3 percent over the year? Who is made better off and who is made worse off?

Consider an economy where: The real rate of interest is 4.13% and the nomial rate of interest is 6.11%, calculate the anticipated rate of inflation

The first two columns of the table below describe the goods and quantities included in your current monthly consumption. Suppose you have been able to use all of your monthly income (no savings) to afford this level of fixed consumption over the last few years despite the increase in the cost of living. • Round all expenditure calculations to the nearest dollar. • Round CPI and inflation (expressed as an integer) to 1 decimal place. • Carry your rounded figures throughout the rest of the problem. 2018 2019 2020 Basket Prices Prices Item Prices Quantities Meal Kit Delivery $106.00 8 $107.00 $110.25 $48.25 $50.00 $46.00 $53.00 Water 16 Hydro Electricity 14 $56.90 $58.75 Dry cleaning $62.00 10 $64.75 $68.00 Entertainment $26.00 17 $28.75 $32.80 Part (a): Using the quantities specified in the 2018 basket of goods, calculate the CPI for 2018, 2019 and 2020. Part (b): What is the inflation rate between 2018 and 2019? 2019 and 2020? Part (c): Suppose inflation is expected to remain constant…

If the price of your cell phone contract increases from R 700 to R 900 over a period of one year and your income rises from R15 000 to R15 500 during that same period, your nominal income has… a) Increased, and your real income has increased. b) Increased, but your real income has decreased. c) Decreased, and your real income has decreased. d) Increased, but your real income has remained the same.

The negative relationship between the demand for investment goods and the real interest rate is determined by the fact that more investment reduces the future depreciation. more investment reduces the marginal product of future capital. more investment increases the total supply for current goods. more investment increases the total demand for current goods. None of the other answers is correct.