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Keep in mind that nominal interest rate=Profit/Initial Amount. The exact relationship that links real interest rate, nominal interest rate and inflation is $(1+R_{nominal})=(1+R_{real})(1+\pi)$ where $\pi$ is the inflation rate (Known as Fisher's identity) $R_{nominal}=R_{real}+\pi$ is an approximation that works best when those variables are relatively ...


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The official answer explains it correctly. A nominal interest rate is calculated independent of inflation. \$25 = \$20 (1 + 0.25). I cannot follow the logic of your calculations, as they do not correspond to how a real rate of interest is calculated. The real rate of interest is the nominal interest rate less inflation, or 15%.


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Have you considered that the nominal interest rate is the rate of interest without adjusting for inflation? So repaying \$25 on \$20 comes to an interest of 25%, no inflation adjustment is needed.


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Simplifying assumption: workers aren't currently saving as much as 10%, so this program actually increases the savings rate. In the long run we'll see a shift in the composition of economic activity. There will be less money going into current consumption (e.g. I'm less likely to go to the movies this week), but more going into investment (e.g. I'm more ...


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Mankiw makes the Big Assumption that total output $Y$ is fixed. Informally and intuitively, we can imagine this as arising because everything is running at full capacity. Factories and workers are working as long and as hard as they can. So, every \$100 increase in consumption (e.g. production of bread, clothing) can only possibly occur with a corresponding ...


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This is because investment is equal to private and public savings (but assuming balanced budget public saving drops out so it would only be private savings I=S). This is because you can only invest what you save. Moreover saving and consumption are mutually exclusive. From your income you can either consume or save there is no third option economically ...


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At the end of this answer there is an explication of the fractional reserve system. It is taken from another question that was closed as duplicate: The problem I have with this concept is the following: A bank give a Merry loan of 100,000$. Merry buys a house with this money. For a period of 1 year, Merry has paid back 10,000 to the bank. Afterward ...


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@1muflon1 is definitely right. But for the sake of debate: when your friend pays $30 for your dinner of two (and then says you need to pay him back at some point) -- he is essentially loaning you $15 at 0% interest. You would owe him 15 now if you had the cash, but if you wait 2 weeks...you'll still owe him $15. I.e. zero interest. Trivial example, maybe. ...


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so admittedly the question as a whole seems slightly confusing. BUT taking the first part: When the Federal Reserve wants to increase the inter-bank lending rates (The "Fed Funds" rate) -- it SELLS its own Treasury Bills through something called "Open Market Operations." By selling its T-bills, it takes money OUT of the system. Less money in the "system" ...


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Your idea that unmaintend equipment costs nothing is also unrealistic. The major industry included in the \$2T bailout/stimulus is the airline industry. Planes left on the ground still require maintenance or preparation for longer-term mothballing. Because of the steep drop in demand for air travel and flight restrictions to international destinations, ...


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While the fed has dropped interest rates, so have almost all other countries. The US Dollar Index (DXY) is a measure of the value of the US dollar relative to a basket of foreign currencies, so if all countries drop interest rates, the relative change should be zero. In economically troubled times, a lot of companies and people flock to the US to buy US ...


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Because of forced selling and a scramble for cash. People responding to margin calls, having to repay bonds etc etc. Cash demand went through the roof.


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It is always very hard to precisely identify the causes of a particular index variation. Here, note that the U.S. Dollar Index (DXY) is a measure of the value of the US dollar relative to a basket of foreign currencies. So, the DXY Index goes up when the U.S. dollar gains value when compared to other currencies. Given that the economic slowdown is global, ...


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It creates losses. First, many businesses don’t own their own building/land/equipment. It’s very common to lease these things. Moreover, many business take out insurance that again has to be paid on monthly basis. In Europe in many countries you need to pay workers certain portion of wages even when you can’t call worker to work or even if they stay home ...


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You did not apply your formula correctly. Your top formula is correct. But in your bottom formula, the numerator on the left side of the equation is a percentage. It should, instead, be a monetary unit of £ in this case. The annual coupon payment should be denominated in £. Not a percentage. Otherwise, the units don't balance each other and don't match the ...


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