ambersoto_week5personalassignment_bus5620.docx

ambersoto_week5personalassignment_bus5620.docx - Amber Soto...

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Amber Soto BUSN 5620 Current Economics Analysis Week 5 Personal Assignment Problem 1 Which of the following people would we expect to be hurt by an increase in the rate of inflation from 3 percent to 6 percent? (a) A homeowner with a $50,000 fixed-rate mortgage on his home. (b) A retired person who receives a monthly pension of $600 from her former employer. (c) An automobile worker with a cost-of-living provision in his employment contract. (d) A wealthy individual who owns corporate bonds that pays her an interest rate of 7% per year. The homeowner and the automobile worker would not be hurt by inflation raising from 3% to 6%. The homeowner would seemingly be unaffected and the automobile worker’s salary would be aadjusted to keep in time with inflation. It would hurt the retired person because monthly pension is a fixed, unchanging rate. A wealthy individual, however, would be hurt the most because if inflation increases then the actual payments would be worth less. Problem 2 How much more output will the average American have next year if the $18 trillion U.S. economy grows by 18 trillion/320 million= $56,250 (a) 2 percent? 18 trillion x .02= .36 (18+.36 trillion)/320 million= $57,375 (b) 5 percent? 18 trillion x .05= .9 (18+.9 trillion)/320 million= $59,062 (c) -1.0 percent? 18 trillion x .01= .18 (18- .18 trillion)/320 million= $55,687 Problem 3 Would it be advantageous to borrow money if you expected prices to rise? Why, or why not?
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