When Were High Interest Rates Really Low? Let i= nominal interest rate, = actual rate of...
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When Were High Interest Rates Really Low? Let i= nominal interest rate, = actual rate of inflation, and r = real rate of interest. Economists expect expectations of inflation to influence nominal interest rates. When borrowers repay lenders, the real interest rate that borrows pay and lenders receive will depend upon the actual rate of inflation. One can measure real interest rates after the fact as ri-. Consider the data in Table 23-2. Column 1 shows data on nominal interest rates on one-year government securities issued in December of each year from 1975 through 2003. Column 2 shows the rate of inflation over the same period, December to December, as measured by the consumer price index. (For example, the rate of inflation reported for 1975 is from December 1975 to December 1976, the same period for which a holder of the government security earned interest.) Nominal and Real Interest Rates Nominal Interest Rates on 1-year Government Securities (December) Rate of Inflation Real Interest Rate (Decemberto December) 1975 6.6% 4.9% 1976 4.89% 6.7% 1977 6.96% 9.0% 1978 10.30% 13.3% 1979 11.98% 12.5% 1980 14.88% 8.9% 1981 12.85% 3.8% 1982 8.91% 3.8% 1983 10.11% 3.9% 1984 9.33% 3.8% 1985 7.67% 1.1% 1986 5.87% 4.4% 1987 7.17% 4.4% 1988 8.99% 4.6% 1989 7.72% 6.1% 1990 7.05% 3.1% 1991 4.38% 2.9% 1992 3.71% 2.7% 1993 3.61% 2.7% 1994 7.14% 2.5% 1995 5.31% 3.3% 1996 5.47% 1.7% 1997 5.53% 1.6% 1998 4.52% 2.7% 1999 5.84% 3.4% 2000 5.60% 1.6% 2001 2.22% 2.4% 2002 1.45% 1.9% 2003 1.31% 3.3% c. When were interest rates highest? Is the answer different depending upon whether one is looking at nominal or real interest rates? Which do you think is the best measure of when interest rates were highest? When Were High Interest Rates Really Low? Let i= nominal interest rate, = actual rate of inflation, and r = real rate of interest. Economists expect expectations of inflation to influence nominal interest rates. When borrowers repay lenders, the real interest rate that borrows pay and lenders receive will depend upon the actual rate of inflation. One can measure real interest rates after the fact as ri-. Consider the data in Table 23-2. Column 1 shows data on nominal interest rates on one-year government securities issued in December of each year from 1975 through 2003. Column 2 shows the rate of inflation over the same period, December to December, as measured by the consumer price index. (For example, the rate of inflation reported for 1975 is from December 1975 to December 1976, the same period for which a holder of the government security earned interest.) Nominal and Real Interest Rates Nominal Interest Rates on 1-year Government Securities (December) Rate of Inflation Real Interest Rate (Decemberto December) 1975 6.6% 4.9% 1976 4.89% 6.7% 1977 6.96% 9.0% 1978 10.30% 13.3% 1979 11.98% 12.5% 1980 14.88% 8.9% 1981 12.85% 3.8% 1982 8.91% 3.8% 1983 10.11% 3.9% 1984 9.33% 3.8% 1985 7.67% 1.1% 1986 5.87% 4.4% 1987 7.17% 4.4% 1988 8.99% 4.6% 1989 7.72% 6.1% 1990 7.05% 3.1% 1991 4.38% 2.9% 1992 3.71% 2.7% 1993 3.61% 2.7% 1994 7.14% 2.5% 1995 5.31% 3.3% 1996 5.47% 1.7% 1997 5.53% 1.6% 1998 4.52% 2.7% 1999 5.84% 3.4% 2000 5.60% 1.6% 2001 2.22% 2.4% 2002 1.45% 1.9% 2003 1.31% 3.3% c. When were interest rates highest? Is the answer different depending upon whether one is looking at nominal or real interest rates? Which do you think is the best measure of when interest rates were highest?
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Macroeconomics Principles Applications And Tools
ISBN: 9780134089034
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
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