Suppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $2,000 into a savings account that pays an annual nominal interest rate of 20%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a reusable tote bags has a price of $20.00. Initially, Devon's $2,000 deposit has a purchasing power of reusable tote bagses. For each of the annual inflation rates given in the following table, first determine the new price of a reusable tote bags, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Devon'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 reusable tote bags. For example, if you find that the deposit will cover 20.7 reusable tote bagses, you would round the purchasing power down to 20 reusable tote bagses under the assumption that Devon will not buy seven-tenths of a reusable tote bags. Number of Tote bags Devon Can Purchase after One Year Real Interest Rate 0% Annual Inflation Rate 20% % 23% % When the rate of inflation is equal to the interest rate on Devon's deposit, the purchasing power of her deposit course of the year. over the
Suppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $2,000 into a savings account that pays an annual nominal interest rate of 20%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a reusable tote bags has a price of $20.00. Initially, Devon's $2,000 deposit has a purchasing power of reusable tote bagses. For each of the annual inflation rates given in the following table, first determine the new price of a reusable tote bags, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Devon'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 reusable tote bags. For example, if you find that the deposit will cover 20.7 reusable tote bagses, you would round the purchasing power down to 20 reusable tote bagses under the assumption that Devon will not buy seven-tenths of a reusable tote bags. Number of Tote bags Devon Can Purchase after One Year Real Interest Rate 0% Annual Inflation Rate 20% % 23% % When the rate of inflation is equal to the interest rate on Devon's deposit, the purchasing power of her deposit course of the year. over the
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $2,000 into a savings account that pays an annual nominal
interest rate of 20%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a
reusable tote bags has a price of $20.00.
Initially, Devon's $2,000 deposit has a purchasing power of
reusable tote bagses.
For each of the annual inflation rates given in the following table, first determine the new price of a reusable tote bags, assuming it rises at the rate of
inflation. Then enter the corresponding purchasing power of Devon'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 reusable tote bags. For example, if you find that the deposit will cover 20.7 reusable
tote bagses, you would round the purchasing power down to 20 reusable tote bagses under the assumption that Devon will not buy seven-tenths of a
reusable tote bags.
Number of Tote bags Devon Can Purchase after One Year
Real Interest Rate
0%
Annual Inflation Rate
20%
%
23%
When the rate of inflation is equal to the interest rate on Devon's deposit, the purchasing power of her deposit
course of the year.
over the
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