Question

1.Expected inflation for the next year is 2.0%. The posted one-year interest rate on bonds is 5.0%.

a.What is the (ex-ante) real interest rate?_________

b.Inflation turns out to be 1.5%. What is the (ex-post) real interest rate that the borrow paid/lender received? _____________

c.Is the lender better off or worse off? _______________________

2.Spartan Spaces creates room set-ups for college dorms.

Spartan Spaces purchases

Bedding for room set-ups from companies in the US for $8,000;

wall shelving for room set-ups from companies in China for $2,300;

equipment for packaging the set-ups to mail from a Chicago company for $1,000

Spartan Spaces sells

50 room set-ups to students at MSU for $100 per room;

50 room set-ups to students at Western Ontario University for $120 per room.

a.How much does each component of US GDP change?

US Consumption_______________

US Investment________________

US Government purchases____________

US Net Exports ____________________

b. What is the change in GDP? ___________________

Use the following information for questions 3 and 4. The Panther Economy produces apples (bushels) and books. Below is the production in 2017 and 2018.The year 2017 is the base year

Apples (bushels) Books   

Quantity Price ($) Quantity Price ($)

2017 5,000 10 4,000 10

2018 6,000 . 11 4,000 14

3. a. What is the nominal GDP in 2017?___________________

What is the nominal GDP in 2018?_ ___________________

b.What is the real GDP in 2017? ___________________

What is the real GDP in 2018?_ ___________________

c.What is the GDP deflator for 2017 and for 2018?

2017___________________

2018__________________

d.What is the inflation rate in from 2017 to 2018 using the GDP deflator? __________________

4. If the market basket of the Panther Economy is 10 bushels of apples, 10 books, and 10 bushels of oranges (produced in Brazil). The prices for apples and books are the same as in question 8 above(apples are $10 in 2017 and $11 in 2018; and books are $10 in 2017 and $14 in 2018) and the price of a bushel of oranges is $10 in 2017 and $15 in 2018.

a.What is the CPI in 2017? ___________________

b.What is the CPI in 2018?__ ___________________

c.What is the inflation rate in 2018 to 2019 using the CPI?___________________

d.What, if any, change would you expect in the purchases of apples and oranges by households from 2017 to 2018? Yes, buy more apples and fewer oranges; Yes, buy more oranges and fewer apples; or No change (circle)

e.Based on what the consumer actually purchases in 2018, would the actual inflation from 2017 to 2018 be higher than ,lower than, or no change from your answer in c? (circle)

Answer 1

As per HomeworkLib guidelines in case of multiple questions only the first question is to be answered

Kindly ask rest of the questions in a separate post

1.

Real interest rate = Nominal Interest rate - Inflation rate

A) Real interest rate = 5% - 2% = 3%

B) New real Interest rate = 5% - 1.5% = 3.5%

C) The lender is now better off, as his interest income in real terms will now increase.