{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

UGBA+101B+-+Homework+5

UGBA+101B+-+Homework+5 - 2 What if any are the costs of...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
UGBA 101B Homework #5 Due: February 28, 9:30AM 1. How do the costs of inflation depend on whether it is anticipated, unanticipated, or variable? The costs of inflation do depend on whether it is the anticipated, unanticipated or variable. The costs of anticipated inflation are not extremely high because people are already expecting the inflation. The shoeleather cost is one important cost because people have to still go to the bank more frequently to withdraw money. There are still menu costs of changing the prices. The costs of unanticipated inflation is high because in this scenario, the creditors are afraid to lend to the debtors because they are afraid the inflation rate will change. Variable inflation has a great cost because people have to spend time examining the daily inflation and the changes.
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 2. What, if any, are the costs of deflation? There are similar menu costs. Also deflation affects the government’s revenue. There is likely to be a loss of government revenue since tax is based on nominal incomes, and deflation may lead to a decrease in spending power when there is no change in purchasing power. 3. What is the nominal interest rate in the United States today? What is the real interest rate? Note : This is a trick question. State some assumptions and answer it. The nominal interest in the United States is 0.25. The assumption is that the real interest rate is different from the nominal interest rate imply the bank is making a rate. I=r+E(pi). This is assuming the bank is making a r rate from using the nominal interest rate....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern