ECONOMICS 101 - A nominal interest rate is defined
Question # 00578874
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Updated on: 08/26/2017 07:19 AM Due on: 08/26/2017
1. A nominal interest rate is defined as “the opportunity cost of holding or using money.” Explain what
you understand this definition to mean.
2. When the economy is in a recession, the Federal Reserve usually cuts interest rates. Why would the
federal government do this?
3. How does your saving and spending profile change depending on the state of the economy, i.e.,
whether the economy is in a recession versus expansion? Do interest rates play a role in your
decisions? Why or why not?
4. If interest rates are at a level of 1% and expected inflation is 2%, would you prefer saving or spending
your money? Justify your answer.
you understand this definition to mean.
2. When the economy is in a recession, the Federal Reserve usually cuts interest rates. Why would the
federal government do this?
3. How does your saving and spending profile change depending on the state of the economy, i.e.,
whether the economy is in a recession versus expansion? Do interest rates play a role in your
decisions? Why or why not?
4. If interest rates are at a level of 1% and expected inflation is 2%, would you prefer saving or spending
your money? Justify your answer.
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Solution: ECONOMICS 101 - A nominal interest rate is defined