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Questions and Answers

(1071 solutions)

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The Board of Governors of the Federal Reserve System consists of _______.

a. up to seven members appointed by the president...

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Posted by Cleveland on September 9, 2024
An example of fiat money is _______.


b. a U.S. twenty-dollar bill...

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Posted by Cleveland on September 9, 2024
The M1 money supply is composed of _______.

a. currency, demand deposits, and other liquid balances at banks such as savings accounts...

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Posted by Cleveland on September 9, 2024
Which of the following is not a function of money?

b. Protection against inflation...

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Posted by Cleveland on September 9, 2024
The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 2014 and 2018, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 2014 to 2018. (All rates rounded to the nearest 0.1 percent.)
YearNominal Interest RateInflation Rate
(Percent)(Percent)
20140.11.6
20150.20.1
20160.51.3
20171.12.1
20182.12.4
Source: “FRED Economic Data,” Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 2014 to 2018. Next, use the green points (triangle symbol) to plot the real interest rates for those years.
According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?

Your AnswerNominal Interest RateReal Interest Rate20132014201520162017201820193.02.01.00-1.0-2.0INTEREST RATE (Percent)YEAR2017, 1.3Correct AnswerPoints:0.5 / 1Close ExplanationExplanation:The real interest rate equals the nominal interest rate minus the inflation rate. For example, the re...

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Posted by Cleveland on September 9, 2024

5. Interest, inflation, and purchasing power

Suppose Dariya is a fan of young-adult fiction and buys only young-adult books. Dariya deposits $2,000 into a savings account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a young-adult book has a price of $10.00.
Initially, Dariya's $2,000 deposit has a purchasing power of 
young-adult books.
For each of the annual inflation rates given in the following table, first determine the new price of a young-adult book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Dariya's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates.
Hint: Round your answers in the first row down to the nearest young-adult book. For example, if you find that the deposit will cover 20.7 young-adult books, you would round the purchasing power down to 20 young-adult books under the assumption that Dariya will not buy seven-tenths of a young-adult book.
Annual Inflation Rate
0%5%8%
Number of Books Dariya Can Purchase after One Year            
Real Interest Rate
When the rate of inflation is greater than the interest rate on Dariya's deposit, the purchasing power of her deposit    over the

Initially, Dariya's $2,000 deposit has a purchasing power of 200young-adult books.Points:1 / 1Close ExplanationExplanation:The initial value of the deposit is $2,000, and the initial price of a young-adult book is $10.00. You can compute the purchasing power of Dariya's initial deposit in the f...

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Posted by Cleveland on September 9, 2024
he following table gives the average nominal interest rates on six-month Treasury bills spanning the years 2004 and 2008, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 2004 to 2008. (All rates rounded to the nearest 0.1 percent.)
YearNominal Interest RateInflation Rate
(Percent)(Percent)
20041.62.7
20053.43.4
20064.83.2
20074.42.9
20081.63.8
Source: “FRED Economic Data,” Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 2004 to 2008. Next, use the green points (triangle symbol) to plot the real interest rates for those years.
According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment?

The real interest rate equals the nominal interest rate minus the inflation rate. For example, the real interest rate in 2004 was 1.6%−2.7%=−1.1%1.6%−2.7%=−1.1%. You can compute the remaining values in a similar way:YearNominal Interest RateInflation RateReal Interest Rate(Percent)(Pe...

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Posted by Cleveland on September 9, 2024
Consider golfers who led the Professional Golfers’ Association of America (PGA) in winnings at different points in time. Note that the winnings are nominal figures (unadjusted for inflation).
To convert the original earnings of Nelson, Nicklaus, and Pavin, use the formula for converting dollar figures from an earlier era into year 2021 U.S. dollars. Using those figures, fill in the following table, making sure to round your responses to the nearest U.S. dollar.
YearGolferNominal WinningsU.S. CPIWinnings in 2021 Dollars
(Dollars)(1983 = 100)
1945Byron Nelson63,33618    
1973Jack Nicklaus308,36244.4    
1991Corey Pavin979,430136.2    
2021John Rahm7,705,933264.77,705,933
True or False: According to the previous table, the golfer with the highest PGA winnings in nominal dollars is the same as the golfer with the highest PGA winnings after adjusting for inflation.

YearGolferNominal WinningsU.S. CPIWinnings in 2021 Dollars(Dollars)(1983 = 100)1945Byron Nelson63,33618931,391   1973Jack Nicklaus308,36244.41,838,365   1991Corey Pavin979,430136.21,903,488   2021John Rahm7,705,933264.77,705,933Points:0.67 / 1Close ExplanationExplanatio...

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Posted by Cleveland on September 9, 2024
Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price index (CPI) and the GDP deflator.
The GDP deflator for this year is calculated by dividing the     using      by the     using      and multiplying by 100. However, the CPI reflects only the prices of all goods and services    .
Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. Check all that apply.
Scenario
Shows up in the...
GDP Deflator
CPI
An increase in the price of a Rivertown Ltd. depths dredger, which is a commercial mining product used for underwater mineral extraction, made in the U.S., but not bought by U.S. consumers
A decrease in the price of a South Korean-made motorcycle that is popular among U.S. consumers

Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price index (CPI) and the GDP deflator.The GDP deflator f...

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Posted by Cleveland on September 9, 2024
Because there isn't one single measure of inflation, the government and researchers use a variety of methods to get the most balanced picture of how prices fluctuate in the economy. Two of the most commonly used price indexes are the consumer price index (CPI) and the GDP deflator.
The CPI for this year is calculated by dividing the     using      by the     using      and multiplying by 100. However, the GDP deflator reflects only the prices of all goods and services    .
Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. Check all that apply.

Scenario
Shows up in the...
GDP Deflator
CPI
An increase in the price of a Smooth Streets Industries pothole puncher, which is commercial construction equipment made in the U.S. but not bought by U.S. consumers
A decrease in the price of a Italian-made furniture that is popular among U.S. consumers

The CPI for this year is calculated by dividing thecost of a given market basket of goods and services    using this year’s prices    by thecost of a given market basket of goods and services    using the base year’s prices    and...

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Posted by Cleveland on September 9, 2024