11 please e bl explaining some of the one single, \"perfect\" economic aspects.

Question

11 please e bl explaining some of the one single, "perfect" economic aspects. Why might this the case? (io points aBuring What Matters" article from the online reading list. o is that it "takes no account of G-100, and NX-0. backs to our current measurement method of GDP is that it"takes no depreciation of capital goods, and so it overstates the value the economy where GDP-$1,000, which is a total of C-600,1-0 &z, 1 0 or 1 000, how country given above? [10 points) of production." Suppose there is an ue of capital stock is K-2,000 and depreciation of capital goods is ould you modify the product approach to measuring GDP to address the etion affecting our measurement of GDP? What would this do to the GDP of the 11. Assume that expected inflation between today (or time-0) and one year from now (or time I)is that real 3% for lender A. Lender B disagrees and estimat interest rates should be 2% on the type of loans they offer. Suppose now that you want to take a loan and your expectation about inflation is 4%, which lender would you contact for your loan and why? (Use the approximation formula (the one given in class when discussing inflation). [10 points es it to be 5%, but they both agree

Explanation / Answer

r = real interest rate = 2% = 0.02

i = inflation rate

n = nominal interest rate

r = [ (1+n)/(1+r)]-1

Nominal interest rate expectation depending on A assumption of inflation rate 3%

0.02 = [ (1+n)/(1+0.03)]-1

1.02*1.03 = 1+n

1.051-1= n

n = 0.051

n = 5.1%

In case of lender B

I = 5% = 0.05

0.02 = [(1+n)/(1+0.05)]-1

1.02*1.05 = 1+n

1.071 = 1+n

n = 0.071

n = 7.1%

In case my assumption

i = 4% = 0.04

0.02 = [(1+n)/(1+0.04)]-1

1.02*1.04 = 1+n

n = 1.0608-1

n = 0.0608

n = 6.08%

So from my assumption the of inflation rate the nominal interest should be 6% or less than 6% where I will be willing to borrow the money at that rate.

So Lender A will give at a nominal interest rate of 5% so I will be calling him for my loan.

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