EC_102_In_Class_Review_Final_S10_-_Remai

# EC_102_In_Class_Review_Final_S10_-_Remai - 22 . By Marks...

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ab0f592186534e285bf7b0a036e2205067ec8ec9.doc 1 19. An increase in capital will likely cause the growth rate of a  relatively rich country to increase by more than that of a  relatively poor country.  The following statement is: a) True b) False 1

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ab0f592186534e285bf7b0a036e2205067ec8ec9.doc 2 19. b) False 2
ab0f592186534e285bf7b0a036e2205067ec8ec9.doc 3 20. Determine the formula for “g” – a growth rate. 21. Determine the formula for the Rule of 70. 3

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ab0f592186534e285bf7b0a036e2205067ec8ec9.doc 4 20. Determine the formula for “g” – a growth rate. o Let g to denote the annual growth rate o g =   Level at the end of n years    1/n - 1 Initial level 21. Determine the formula for the Rule of 70. 70/g 4
ab0f592186534e285bf7b0a036e2205067ec8ec9.doc 5 Ch. 6 – Consumer Price Index

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Unformatted text preview: 22 . By Marks buys a one-year German government bond (called a bund) for \$400. He receives principal and interest totalling \$436 one year later. During the year the CPI rose from 150 to 162, but he had thought the CPI would be 159 by the end of the year. By Marks had expected the real interest rate to be _____, but it actually turned out to be _____: a) 8%, 1% b) 6%, 3% c) 3%, 1% d) 1%, 3% 5 ab0f592186534e285bf7b0a036e2205067ec8ec9.doc 6 Ch. 6 Consumer Price Index 22. c) 3%, 1% Principal = \$400 Interest = \$36 Therefore nominal interest rate = 9% Inflation is expected to be 6% (159 150)/ (150) So real interest rate is expected to be 9% - 6% = 3% But inflation turns out to be 8% (162-150)/ (150) So real interest rate is only 9% - 8% = 1% 6...
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## EC_102_In_Class_Review_Final_S10_-_Remai - 22 . By Marks...

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