Ask Question
BusinessBusiness
16 March, 05:15

Inflation - Quick Quiz Problem "An economy with constant velocity of money has real GDP growth of" 3%, money growth of 7%, and a real interest rate of 2%. What is the nominal interest rate?

+5
Answers (1)
  1. 16 March, 08:34
    0
    Given Information:

    Real GDP growth = Y = 3%

    Money growth = M = 7%

    Real interest rate = r = 2%

    Velocity = constant = 0%

    Required Information:

    Nominal interest rate = ?

    Answer:

    Nominal interest Rate = 6%

    Explanation:

    The quantity theory of money (QTM) equation is given by

    ΔM + ΔV = ΔP + ΔY

    ΔP = ΔM + ΔV - ΔY

    Substituting the percentages given in the problem,

    ΔP = ΔM + ΔV - ΔY

    ΔP = 7% + 0% - 3%

    ΔP = 4%

    The fisher equation which relates real and nominal interest rate is given by

    Real interest rate = Nominal interest rate - Inflation rate

    Re-arranging the equation to find nominal interest

    Nominal interest rate = Real interest rate + Inflation rate

    Nominal interest rate = 2% + 4%

    Nominal interest Rate = 6%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Inflation - Quick Quiz Problem "An economy with constant velocity of money has real GDP growth of" 3%, money growth of 7%, and a real ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
Dan and Emily have decided to start a new home inspection business. They have both worked in this industry as sole proprietors, but now, they want to join forces to share in the management of the business.
Answers (1)
In the Bank Location problem, four of the twenty counties were on adjacent to Pennsylvania. (Counties 1, 14, 15, 16.
Answers (1)
John bought 1,000 shares of Intel stock on October 18, 2015, for $30 per share plus a $750 commission he paid to his broker. On December 12, 2019, he sells the shares for $42.50 per share. He also incurs a $1,000 fee for this transaction. a.
Answers (1)
Did the provision for interest on late payments materially alter the contract
Answers (1)
If you invest $1,500 today in a bank that gives you a 5 percent annual interest rate, which of these items can you buy in two years?
Answers (1)
New Questions in Business
If the average cost of transporting a passenger on the train from Chicago to St. Louis is $75, it would be irrational for the railroad to allow any passenger to ride for less than $75. True/False
Answers (1)
Beasley, Inc., reports the following amounts in its December 31, 2021, income statement. Sales revenue $ 350,000 Income tax expense $ 36,000 Interest expense 13,000 Cost of goods sold 120,000 Salaries expense 35,000 Advertising expense 25,000
Answers (1)
Minimum wage laws have the smallest effect on which segment of the labor force? a. low-skilled labor b. teenagers c. skilled workers d. unemployed workers
Answers (1)
A retailer buys a painting for $200. she sets the selling price at $450. when the painting doesn't sell after two months, she raises the price to $800 to appeal to a different market. the painting sells for $800 the next day.
Answers (1)
Kathy Brooks is a franchisee who wishes to donate her old HRB workstations and server to a local charity for a fundraising auction.
Answers (1)
Home » Business » Inflation - Quick Quiz Problem "An economy with constant velocity of money has real GDP growth of" 3%, money growth of 7%, and a real interest rate of 2%. What is the nominal interest rate?
Sign Up Forgot Password?