You took out a loan one year ago at a nominal interest rate of 7.5%. The CPI stood at 173.2 at the time and you expected it to rise to 178.6 over the year. Today the CPI is actually 179.5. Calculate the expected real interest rate on the loan and the real interest rate on the loan.
What will be an ideal response?
The expected inflation rate when you took out the loan equals (178.6 - 173.2)/173.2 = 3.1%, so your expected real interest rate was 7.5% (nominal interest rate) - 3.1% (expected inflation rate) = 4.4%. The actual inflation rate over the period equals (179.5 - 173.2)/173.2 = 3.6%, so your real interest rate was 7.5% (nominal interest rate) - 3.6% (inflation rate) = 3.9%.
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North Korea has a command economy.
a. true b. false
An excise tax on gasoline causes
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Molly Sharp is producing a documentary about the plight of the six-toed ferrets of Sri Lanka. Molly has spent $125,000 of her own money on this project and the documentary is now complete. Molly just found out that no studio is willing to release her
documentary and she must now shop it to cable television networks, where she knows she will not be able to recoup her investment. Which of the following statements regarding Molly Sharp's documentary is true? A) She should not try to have her documentary aired on television because she cannot recoup her $125,000 investment. B) Since the $125,000 is a sunk cost, she should still try to have her documentary aired on television even though she will not see a profit. C) The $125,000 is a variable cost, so will not be incurred if she chooses not to have her documentary aired. D) The $125,000 investment is an economic cost, and she will still make an accounting profit even if the television network willing to air her documentary pays her less than $125,000.