Sally will earn $30,000 this year and $40,000 next year. The real interest rate is 20% between this year and next year; she can borrow or lend at this rate. She has no wealth at the start of this year and plans to finish next year having consumed everything she possibly can. She would like to consume the same amount this year as next year. The inflation rate is 0%. (a) How much should Sally save this year? How much will Sally consume in each of the two years? (b) How would your answers change if the real interest rate was 40% ?

Suppose you take out a loan at your local bank. The bank expects to earn an annual real interest rate equal to 33​%. Assuming that the annualized expected rate of inflation over the life of the loan is 11​%, determine the nominal interest rate that the bank will charge you.

The inflation over four consecutive quarter is fl=1%,f2=0.5%, fs-0.5%, f-196. what is the inflation for the entire year?

Suppose, you are planning to put away $20,000 of your savings for one year. You have the following options: 1.) Buy an indexed savings bond that earns 6.50% interest rate for the next year or, 2.) Buy a non-indexed savings bond that earns 11.00% interest rate for the next year. The inflation rate for the next year is expected to be 4.50%. Which option will you choose for the next year? OA. The non-indexed bond should be chosen as it pays a higher rate of interest. OB. The rate of inflation should not play a role in making this decision. OC. It does not matter whether the indexed or the non-indexed bonds are chosen, since they pay the same real rate of interest. D. The indexed bond option should be chosen as it protects from inflation.

You are a saver, and you deposit your savings in your savings account at your local bank. The bank promises a nominal interest rate on your savings of 2.10%. You expect an inflation rate of 1.25% over the next year. Based on this information, what is the real interest rate that you want to receive? 1.25% 0.85% 2.10% 3.35% -0.85%

Elvira has a major building project. She will need to borrow money. If she can borrow money at a real interest rate of 3.5%, or less, the project will be profitable. However, if the borrowing is set at a real rate higher than 3.5%, the project will be a loss. The bank is offering her a rate of 13% currently. The CPI is due to be released tomorrow. The CPI from one year ago is 263.014. The current CPI is 284.55. Assume the bank's rate is 13% throughout, and the CPI from one year ago is the same at 263.014. Elvira expects tomorrow's CPI to be 290.35. Whether tomorrow's CPI is the same (284.55) or at Elvira's expectation (290.35) the rate is expected to continue. She must commit to the bank today or tomorrow. If she doesn't get the loan, she will be fired. Should she borrow now or wait for the release of CPI data? Why? What are the relevant numbers involved?

There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 5.255.25% nominal interest rate. He expected inflation to be 1.501.50%. Instead, inflation is −2.00−2.00% (deflation). What is the real interest rate that Herb is expected to pay and that Herb is actually paying?

M6

If the nominal rate on a loan is 7.0% and annual inflation is 3.0%, what is the real interest rate for that loan? 3.0% 4.0% 10.0% Not enough information.

Michelle has won a prize that will pay her $1000 per year, starting one year from today,for 15 years. Inflation is expected to be 3% per year for the next 15 years, and her interest rate is 5% per year. What is the present value of this prize today? (Treat the 3% inflation as a negative 8, thus g = -3%, and i is 5%)