Suppose two parties agree that the expected inflation rate for the next year is 6 percent. Based on this, they enter into a loan agreement where the nominal Interest rate to be charged is 6 percent. If inflation for the year turns out to be 4 percent, who gains ar who loses? Instructions: Enter your responses as whole numbers. The ex ante real interest rate is percent. This is what borrowers think they are paying and lenders think they are earning. With the actual inflation of 4 percent, the ex post real interest rate will be percent.

1. The index number representing the price level changes from 110 to 115 in 2019, and then from 115 to 120 in 2020. Since the index number increases by 5 this year, is five the inflation rate each year? Is the inflation rate the same each year?. NOTE: Explain and support the answer with calculations. 2. The total price of purchasing a basket of goods over four years is; year 1 - P940 year 2 - P970 year 3 - P1,000 year 4 - P1,070 Calculate two price indicates, one using year 1 as the base year (set equal to 100) and the other using the year 4 as the base year (set equal to 100). NOTE: Explain and support the answer with calculations.

Makayla bought a $1,000, 5-year inflation - indexed bond that had a real interest rate of 5.10% when the CPI was 248.615. A year later, the CPI decreased to 219.313. What amount of interest (rounded to the nearest cent) will she receive? a. $ 57.81 b. $51.00 c. $44.99 d. $ 27.10

The table below shows the annual change in the average nominal wage and inflation rate since 2008. a. Compute the percentage change in real income for each year shown in the table. Instructions: In part a, round your answers to two decimal places. In parts b and c, enter your answers as a whole number. If entering a negative number, include a minus sign. Percentage Changes in Nominal Income and Prices Year 2008 2009 2010 2011 2012 2013 Annual Inflation Rate (percent) 3.92% -0.36 1.66 3.24 2.11 1.48 Annual Nominal Wage Growth (percent) 0.34% -1.24 -0.76 1.4 2.76 2.28 Annual Real Wage Growth (percent) (0.39) x % (0.88) ♥ 2.42 x 9.87 x b. Of the years listed above, the paycheck of the average worker declined in 2 c. Of the years listed above, the purchasing power of the average worker declined in of the six years. 4 of the six years. d. The average real income of households can increase whether the nominal wage increases or decreases