Why do bankers care so much about the real interest rate

Reference no: EM133246682

Question 1. Both inflation and deflation can be dangerous. Based on your readings, provide historical examples, and explain what are the respective damaging effects?

Question 2. Inflation makes some people worse off and others better off. Price effects, Income effects, and Wealth effects all redistribute economic outcomes, adding an element of luck to our world. Explain how this works.

Question 3. Consider last year a price index base year with a CPI of 100. If a general basket of goods last year was $20,000, and the same basket is $24,000 this year. Compute the price index for this year.

Question 4. Bankers make loans in the Nominal Interest Rate, so why do bankers care so much about the Real Interest Rate?

Question 5. RESEARCH PROJECT on Class Inequality. Who has done better in the past decade during a time in which shareholder wealth more than doubled: Has it been the wealthy or have wage earners also more than doubled?

While the stock market stood around 36,000 by December 31, 2021, in 2012 it had a value starting at only around 12,600. That means wealth measured by the Dow Jones Index Value almost tripled, easily surpassing inflation because 36,000 is easily more than double 12,600 as an index measure of wealth.

In contrast, we always wonder if real wages for workers rise enough to cover inflation so easily. Even if wages rise somewhat, is it possible that workers fall behind in other ways due to inflation? Consider data since 2012. The 4th quarter 2012 median weekly wages of $771 per week, equate to a real wage measure of $333 in 1984 prices. Follow the links below and then consider median wage data for 2021 from "BLS" charted with nominal and real measures to make your argument. Again, who has done better?

Reference no: EM133246682

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