Inflation and Interest Rates. Len buys MP3 music at $1 per tune, and prefers music now to music later.

He is willing to sacrifice 10 tunes today as long as he gets at least 11 tunes in a year. When Len loans $50 to Barb for a one-year period, he cuts back his music purchases by 50 tunes.

a. To make Len indifferent about making the loan, Barb must repay him _________________ tunes or

$_________________ . The implied interest rate is _________________ percent.

b. Suppose that over the one-year period of the loan, all prices (including the price of MP3 tunes)

increase by 20 percent, and Len and Barb anticipate the price changes. To make Len indifferent about making the loan, Barb must repay him _________________ tunes or $ _________________ . The implied interest rate is _________________ percent.