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Inflation

Inflation is a widely discussed topic because it has a huge effect on our economy. In fact, we can see the effect inflation has on our economy when we compare the prices of goods and services over the last fifty years. Inflation is when money loses its value over time, which results in an increase in the average level of prices. It is the opposite of deflation, which is a decrease in average prices. The study of inflation provides foundations to understanding the implications on currency exchange works and the stock market. Inflation is measured by the Consumer Price Index (CPI), which compares the price of a specific basket of goods from one year to another. A base year is selected for the calculation where the CPI for that year is 100 and all other years will be indexed accordingly. By looking at the index we get a better idea of the purchasing power we lose over time with the same nominal value of money.

Within the topic inflation important questions include: What level of inflation is acceptable? What policies should be implemented to prevent too high or too low inflation? What is the relationship between inflation and unemployment in reference to the Phillips Curve? Is inflation caused by changes in the interest rate or vice versa? How does inflation relate to the demand for money?

Sharp rise in oil prices, which sends the price of gasoline

You are a member of the Federal Reserve Board. "There is a sharp rise in oil prices, which sends the price of gasoline to $5 per gallon, increasing the inflation rate, and sending the economy into recession."Given the following scenario, what would be your recommendations to stabilize the economy? Explain. Describe what would be

The US Economy in 2009 and Today

Please help with the following problem: In terms of inflation, interest rates and unemployment, what is the current economic situation in America as compared to five years ago? Please provide academic reference to support the response.

Calculating YTM for the Given Bond

Assume that a Ford bond has a maturity of 30 years. The bond has a face value of $1,000 and a coupon rate of 8% paid semi-annually. The present market price for the bond is $950. Assume your required rate of return on the bond is 9%, given your other opportunities and your appetite for risk. Calculate the return (yield-to-m

The Philips Curve

Suppose the economy has been experiencing zero inflation and five percent unemployment for several years. The government decides to lower the unemployment percentage by generating some inflation. You need to do the following: 1. Using the Grapher tool, create a graph showing what the short-run effects would be and what would

Targeting-Inflation or Interest Rates

Targeting When looking at targets, you will find that this is very important for economies to evaluate. If the Fed was to conduct targets, it will make their job a little bit more transparent. How effective would their policies to help stabilize our economy? Inflation or Interest Rates When looking at the Fed, you wil

Unemployment and the Current Rate of Inflation

What is the current rate of unemployment and the current rate of inflation? Make sure you provide the source of your information. What is the president doing to help us in our current economic crisis? Do you agree/disagree with his proposals? Why? Check out this website: http://www.whitehouse.gov/issues/economy What are you

Nominal and Real Amounts

This is an important notion in economics which infuses several concepts dealing with money. We have "nominal" quantities and "real" quantities. For example, one would talk about the nominal price of a house as opposed to real price of the same house. Or one might talk about nominal deficit as opposed to real deficit. What's the

Calculate the rate of return and future value in current dollars.

1. A man bought a 5% tax-free municipal bond. It cost $1000 and will pay $50 interest each year for 20 years. At maturity the bond returns the original $1000. There is 2% annual inflation. what real rate of interest will the investor receive? 1. What rate of return will the investor receive after the effect of inflation has bee

Real Cash Flows: PV of Mr. Art Deco's Payment

Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate: PV = 100,000/1.08 = $92,593 The inflation rate is 4%. Calculate the PV of Mr. Deco's payment using the equivalent real cash flow and real discount rate.

Current Event Article Evaluation

I need help evaluating the article below. The analysis should be at least 250 words. I must cite the article in APA style. http://www.forbes.com/sites/michaelpento/2012/05/01/why-higher-inflation-destroys-jobs/

What is the effect of an increase in the quantity of money?

Please help answer the following questions. Provide at least 200 words in the solution as well as references to go along with the solution. What is the effect of an increase in the quantity of money? What is the difference between real variables and nominal variables? Are these variables affected by the quantity of money? If

Nominal and Real Interest Rates on a Loan

Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected. a. Is the real interest rate on this loan higher or lower than expected? b. Does the lender gain or lose from this unexpectedly high inflation? Does the borrower gain o

Macroeconomic analysis concerns

I understand that there are three primary concerns in macroeconomics analysis that include: inflation, output growth and unemployment. The only thing I do not understand is the motivation behind these concerns. Can you explain please?

What average annual inflation rate would have resulted in the same price?

Thirty years ago, the price of a new Volkswagen was $5,000. (Actual price adjusted to simplify the calculation). The price of a new Volkswagen is $20,000 today. Basing your answer solely on the aforementioned prices, by what percent have prices increased over the past thirty years? (Show your work). What average annual inflation

Real vs. Nominal Interest Rates

Please provide help with this assignment: You observe that the current interest rate on short-term U. S. Treasury bills is 4.76 percent. You also read in the newspaper that the Gross Domestic Product (GDP) deflator, which is a common macroeconomic indicator used by market analysts to gauge the inflation rate, currently implie

Okun's Law, CPI, and Real Income

1) Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full time jobs, 10; What is the size of the labor force? What is the official unemployment rate? 2) Suppose that the natural ra

Nominal interest rate

If the real interest rate is 5%, the U.S. inflation rate is at 3%, and the inflation rate of the euro area (the countries that use the euro) is at 4%, what are the nominal interest rates for both the United States and the euro area?

Following are examples of typical economic decisions made by the managers of a firm. Determine whether each is an example of what, how or for whom. a- Should a company make its own spare parts or buy them from an outside vendor ? b- Should the company continue to service the equipment that it sells or ask customers to use independent repair companies? c- Should a company expand it's business to international markets or concentrate on the domestic market? d-Should the company replace it's own communications network with a virtual private network that is owned or operated by another company? e- Should the company buy or lease the fleet of trucks that it uses to transport it's products to market? 2- Because of inflation, a company must replace one of it's (fully depreciated ) machines at twice the nominal price paid for a similar machine eight years ago. Based on present accounting rules , will the company have covered the entire cost of the new machine through depreciation charges? Explain by contrasting accounting and economic costs. 3- You have a choice of opening your own business or being employed by someone else in a similar type of business. What are some of the considerations in term of opportunity costs that you would have to include in arriving at your decision?

1- Following are examples of typical economic decisions made by the managers of a firm. Determine whether each is an example of what, how or for whom. a- Should a company make its own spare parts or buy them from an outside vendor ? b- Should the company continue to service the equipment that it sells or ask customers t

Solving: Problems Regarding Inflation and Unemployment

1. Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part time workers looking for full time jobs, 10. What is the size of the labor force? What is the official unemployment rate? 3. If the CPI was 110 last year

Find the rates of unemployment and inflation

1. Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 140; unemployed, 36; part-time workers looking for full-time jobs, 10. What is the size if the labor force? What is the official unemployment rate? 2. Suppose that the natural rate

CPI Analysis

If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation? In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year's rate of inflation? What term do economists use to describe this second outcome?

Demand-pull inflation

Which of the following policies would decrease demand-pull inflation? a. An increase in excess reserves. b. The FED buying government securities. c. Incomes policies. d. A reduction in resource prices.

business cycles

Why does capitalism have business cycles and what is our business cycle today?. Why would you suppose that the FED and the US Government to target these two percentages? What is the percentage rate of Full Employment and Inflation that that these two organizations try to keep as its target?