Chapter 28 Homework ECO

The Fed increases the quantity of money. In the short​ run, the quantity of money demanded​ ______ and the nominal interest rate​ ______.

increases; falls

Sara has ​$300 in currency and ​$2,000 in a bank account on which the bank pays no interest. The inflation rate is 1 percent a year. Calculate the amount of inflation tax that Sara pays in a year.

$23. (Currency + Bank Account) * Inflation Rate = Inflation Tax (300 + 2000) * 0.01 = 23.

Sally has a credit card balance of ​$5,000. The credit card company charges a nominal interest rate of 19 percent a year on unpaid balances. The inflation rate is 7 percent a year. Calculate the real interest rate that Sally pays the credit card company.

12. Nominal Interest Rate - Inflation Rate = Real Interest Rate 19 - 7 = 12.

Peter Howitt of Brown University has estimated that if inflation is lowered from 3 percent a year to​ zero, then after 30​ years, real GDP would be​ ______ percent higher.

2.3.

The costs of inflation do not include​ _______.

an increase in saving and investment

In the long run with a constant velocity of​ circulation, the inflation rate​ _______.

equals the money growth rate minus the growth rate of real GDP

​Inflation-adjusted savings bonds purchased from May through October 2009 will earn​ 0% for the first six months. The fixed interest rate on these bonds is​ 0.1% and over the previous 6​ months, inflation fell at an annual rate of​ 5.56%. The minimum interest rate on savings bonds is set at​ 0%. Are these savings bonds a better deal than cash under the​ mattress? At an interest rate of 0​ percent, the return on the bonds​ ______ the return on money. If inflation starts to​ rise, and bonds receive a fixed interest rate of 0.1​ percent, the return on the bonds​ ______ the return on money.

equals; is greater than

The Federal Reserve Chairman Ben Bernanke said Thursday that while interest rates will stay low for some​ time, interest rates will rise as the recovery picks​ up, in order to fight off the threat of inflation. Explain​ why, other things remaining the​ same, interest rates will rise the economy recovers from recession. Other things remaining the​ same, interest rates will rise as the economy recovers from recession because​ ______.

the increase in real GDP increases the demand for money

If the Fed purchases the government securities on the open​ market, the quantity of money​ ______ because​ _______. The nominal interest rate​ _______.

​increases; bank reserves increase falls

An increase in real GDP​ ______ the demand for money and changes in financial technology​ ______.

​increases; can increase the demand for money or decrease the demand for money