P1 Nominal and real rates. Tyra loves to shop at her favorite store, Dollar Barrel, where she can findhundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree atDollar Barrel, but she is also thinking of investing her money.a. Suppose the expected rate of inflation is 1% (so next year, everything at Dollar Barrel will cost $1.01) andb. Now suppose that the expected inflation rate is 10% and Tyra can earn 20% on money that she invests overthe year. What is the approximate real rate of interest that Tyra will earn? Calculate the number of itemsthat Tyra could buy next year from Dollar Barrel if she invests her money. What is the percentage increasein her purchasing power if she waits a year to go shopping?Answer fill in the blue bozes below.a. 1.) Approximately what real rate of interest could Tyra earn if she invests her money?Nominal interest rateExpected inflationApproximate real rate2.) How many items can she buy at Dollar Barrel today, and how many can she buy a year from now if she$200$15%17.Money todayCost per item todayItems buy todayMoney in one yearCost per item in one yearItems buy in one year3.) What is the percentage increase in Tyra's purchasing power if she waits a year to go shopping?Items buy todayItems buy in one yearChange in purchasing po200207.92 3.) What is the percentage increase in Tyra's purchasing power if she waits a year to go shopping?Items buy todayItems buy in one yearChange in purchasing poCompare your answer to the approximate real interest rate on Tyra's investment.The actual change in purchasing power is nearly the same as the approximate real interest rate.b. 1.) What is the approximate real rate of interest that Tyra will earn?Nominal interest rateExpected inflation200207.92Money in one yearCost per item in one yearItems buy in one year20%10%Approximate real rate2.) Calculate the number of items that Tyra could buy next year from Dollar Barrel if she invests herMoney today$200$1Cost per item todayItems buy today3.) What is the percentage increase in her purchasing power if she waits a year to go shopping?Items buy todayItems buy in one yearChange in purchasing po200218.18

Money is available today to spend=$200 Expected inflation=1% Real interest rate is the…

P1 Nominal and real rates. Tyra loves to shop at her favorite store, Dollar Barrel, where she can find hundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree at Dollar Barrel, but she is also thinking of investing her money. a. Suppose the expected rate of inflation is 17. (so next year, everything at Dollar Barrel will cost $1.01) and b. Now suppose that the expected inflation rate is 10% and Tyra can earn 20% on money that she invests over the year. What is the approximate real rate of interest that Tyra will earn? Calculate the number of items that Tyra could buy next year from Dollar Barrel if she invests her money. What is the percentage increase in her purchasing power if she waits a year to go shopping?

P1 Nominal and real rates. Tyra loves to shop at her favorite store, Dollar Barrel, where she can find hundreds of items priced at exactly $1. Tyra has $200 to spend and is thinking of going on a shopping spree at Dollar Barrel, but she is also thinking of investing her money. a. Suppose the expected rate of inflation is 17. (so next year, everything at Dollar Barrel will cost $1.01) and b. Now suppose that the expected inflation rate is 10% and Tyra can earn 20% on money that she invests over the year. What is the approximate real rate of interest that Tyra will earn? Calculate the number of items that Tyra could buy next year from Dollar Barrel if she invests her money. What is the percentage increase in her purchasing power if she waits a year to go shopping?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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