macro: nominal vs. real interest rates
Which of the following best describes the difference between nominal interest rates and real interest rates?
nominal interest rates are not adjusted for inflation; real interest rates are adjusted for inflation
Ygritte loaned Mans $100. Mans paid her back $110 one year later. The annual rate of inflation was 3%. What was the nominal interest rate that Ygritte earned on this loan?
10%
Mance wants to borrow money, but he doesn't want to pay more than 11% real interest per year. He expects the annual rate of inflation to be 3% each year during the life of the loan. Based on this information, what is the highest nominal interest that he will be willing to pay?
14%
The Iron Bank wants to make sure that the purchasing power of the interest that they get paid on loans is at least 11%. Real GDP is increasing at 5% per year, and the expected rate of inflation is 7% per year. If all banks in Westeros want to earn the same real return as the Iron Bank, what is the nominal interest rate (n.i.r)?
18%
Grey Worm borrowed $20 from Daenerys and promised to pay her back $25 a year later. What is the nominal interest rate that Daenerys expects to earn if the rate of inflation is 10%?
25%
Hodor borrowed $1000. The bank charges him 5% interest per year. At the end of one year, he paid $50 in interest. During that year, there was a 2% increase in the GDP deflator. What was the nominal interest rate?
5%
The Iron Bank of Westeros charges the Lannister family 12% interest on their loans. The director of finance at the bank collected information about the economy in Westeros over the past year as shown in the table below. variable change Real GDP growth rate 3% Increase in the real GDP deflator 7% What was the real interest rate that the Iron bank earned on these loans?
5%
Ygritte loaned Mans $100. Mans paid her back $110 one year later. The annual rate of inflation was 3%. What was the real interest rate that Ygritte earned on this loan?
7%
Which of the following best describes how banks determine what interest rate to charge?
Expected real interest + expected inflation
The interest rate that the bank paid you on your savings account last year was 18%. One year later you find that you can buy 12% more goods than you could last year. Based on this information, what was the nominal interest rate (n.i.r.), real interest rate (r.i.r.), and the rate of inflation (inf. rate)?
n.i.r =18% r.i.r =12% inf. rate =6%
The interest rate that the bank charged you on your loan last year was 9%. One year later you find that it costs you 2% more to buy goods and services this year as it did last year. Based on this information, what was the nominal interest rate (n.i.r.), real interest rate (r.i.r.), and the rate of inflation (inf. rate)?
n.i.r =9% r.i.r =7% inf. rate =2%