5. Interest, inflation, and purchasing powerSuppose Dalton is a fashionista and buys only denim jackets. Dalton deposits $2,000 into a savings account that pays an annual nominal interest rateof 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has aprice of $20.00.Initially, Dalton's $2,000 deposit has a purchasing power ofdenim jackets.For each of the annual inflation rates given in the following table, first determine the new price of a denim jacket, assuming it rises at the rate ofinflation. Then enter the corresponding purchasing power of Dalton's deposit after one year in the first row of the table for each inflation rate. Finally,enter the value for the real interest rate at each of the given inflation rates.Hint: Round your answers in the first row down to the nearest denim jacket. For example, if you find that the deposit will cover 20.7 denim jackets,you would round the purchasing power down to 20 denim jackets under the assumption that Dalton will not buy seven-tenths of a denim jacket.Number of Jackets Dalton Can Purchase after One YearReal Interest Rate0%Annual Inflation Rate10%14-013%When the rate of inflation is equal to the interest rate on Dalton's deposit, the purchasing power of her depositcourse of the year.remains the samerisesfallsover the

Given information Suppose Dalton buys only denim Jackets. Dalton deposits $2000 into a saving…

Suppose Dalton is a fashionista and buys only denim jackets. Dalton deposits $2,000 into a savings account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a price of $20.00. Initially, Dalton's $2,000 deposit has a purchasing power of denim jackets.

Suppose Dalton is a fashionista and buys only denim jackets. Dalton deposits $2,000 into a savings account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a price of $20.00. Initially, Dalton's $2,000 deposit has a purchasing power of denim jackets.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

5. Interest, inflation, and purchasing power
Suppose Dalton is a fashionista and buys only denim jackets. Dalton deposits $2,000 into a savings account that pays an annual nominal interest rate
of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a
price of $20.00.
Initially, Dalton's $2,000 deposit has a purchasing power of
denim jackets.
For each of the annual inflation rates given in the following table, first determine the new price of a denim jacket, assuming it rises at the rate of
inflation. Then enter the corresponding purchasing power of Dalton's deposit after one year in the first row of the table for each inflation rate. Finally,
enter the value for the real interest rate at each of the given inflation rates.
Hint: Round your answers in the first row down to the nearest denim jacket. For example, if you find that the deposit will cover 20.7 denim jackets,
you would round the purchasing power down to 20 denim jackets under the assumption that Dalton will not buy seven-tenths of a denim jacket.
Number of Jackets Dalton Can Purchase after One Year
Real Interest Rate
0%
Annual Inflation Rate
10%
14-0
13%
When the rate of inflation is equal to the interest rate on Dalton's deposit, the purchasing power of her deposit
course of the year.
remains the same
rises
falls
over the

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