chapter 9 problem 4

0 percent d. 12 percent S S10.000 of savings that she may deposit with the local bank. Kaitlin wants to earn a real rate of return of least A percent and she is expecting inflation to be exactly 3 percent What is the lowest nominal interest rate that Kaitlin would be willing to accept from her local bank? LO9.4 change next n 10. True or False L094 d. 7 percent Tenders are helped by unanticipated i inflation re- 11. Economists agree that duces real output LO9.5 Cost push b. Demand-pull 6. Push-pull. PROBLEMS 1 Suppose that a country s annual growth rates were 5, 3.4, -1. 2. 2. 3. 4. 6, and 3 in yearly sequence over a 10-year period. What was the country's trend rate of growth over this period? Which set of years most clearly demonstrates an expansionary ase of the business cycle? Which set of years best illustrates a recessionary phase of the business cycle? L09.1 ssume the following data for a country: total population, 500. population under 16 years of age or institutionalized, 120, not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the official unemployment rate? L09.2 3. Suppose that the natural rate of unemployment in a particular year is 5 percent and the actual rate of unemployment is 9 per- cent. Use Okun's law to determine the size of the GDP gap in percentage-point terms. If the potential GDP is S500 billion in that year, how much output is being forgone because of cyclical unemployment? L09.2 4. If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year's rate of on? What term do economists use to describe this see outcome? L09.3 5. How long would it take for the price . ong would it take for the price level to double it intia sisted at (a) 2 percent per year. (b) 5 percent per year, and (c) 10 percent per year? L09.3 ur nominal income rose by 5.3 percent and the price level O by 3.8 percent in some year, by what percentage would your real income (approximately) increase? If your nominal in- come rose by 2.8 percent and your real income rose by 1. per- m some year, what must have been the approximate) rate of inflation? L094 Suppose that the nominal rate of inflation is 4 percent and the inflation premium is 2 percent. What is the real interest rate! Alternatively, assume that the real interest rate is 1 percent and the nominal interest rate is 6 percent. What is the inflation premium? L09.4 8. If the inflation premium is 2 percent and the nominal interest rate is 1 percent, what is the real interest rate? What if the infla- tion premium is 3 percent while the nominal interest rate is 0.5 percent? L09.4