uppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $3,000 into a savings account that pays an annual nominal nterest rate of 15%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a eusable tote bags has a price of $15.00. nitially, Devon's $3,000 deposit has a purchasing power of 9 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 nflation. 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 ote 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

uppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $3,000 into a savings account that pays an annual nominal nterest rate of 15%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a eusable tote bags has a price of $15.00. nitially, Devon's $3,000 deposit has a purchasing power of 9 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 nflation. 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 ote 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

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

8. Interest, inflation, and purchasing power
Suppose Devon is an avid reader and buys only reusable tote bagses. Devon deposits $3,000 into a savings account that pays an annual nominal
interest rate of 15%. 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 $15.00.
Initially, Devon's $3,000 deposit has a purchasing power of
9 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
15%
%
%
18%
%
When the rate of inflation is greater than the interest rate on Devon's deposit, the purchasing power of her deposit
course of the year.
over the

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Step 3: Calculate the purchasing power and inflation when the rate of inflation is 0 %

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Step 4: Calculate the purchasing power and inflation when the rate of inflation is 15%

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Step 5: Calculate the purchasing power and inflation when the rate of inflation is 18%

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