Suppose that the Consumer Price Index in the United States was 2.073 in 2007, 2.153 in 2008 and 2.145 in 2009. If a retiree's pension is indexed for inflation, her monthly pension check would have from 2007 to 2008, and O decreased; increased O decreased; decreased O Increased; increased O increased; decreased from 2008 to 2009.

Assume the expected rate of inflation is 3 percent per year.  What nominal interest rate should you charge to receive a real interest rate of 2 percent per year?

assume instead that the nominal interest rate is 4 percent and the expected rate of inflation is minus 1 percent.  Calculate the real rate of interest.

The purchasing power​ (real value of​ money) decreases if inflation is present in the economy. For​ example, the purchasing power of ​$33,000 after t years of 8​% inflation is given by the model P=33,000e−0.08t dollars. How long will it take for the value of a ​$33,000 pension to have a purchasing power of ​$16,500 under 8​% ​inflation?

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