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3. Assume you just deposited $10,000 into a bank account. The current inflation rate is 2.5% and the current real interest rate is 3.5% and
3. Assume you just deposited $10,000 into a bank account. The current inflation rate is 2.5% and the current real interest rate is 3.5% and inflation is expected to be 5% over the next year. What nominal rate would you require from the bank next year to maintain a 3.5% real return? How much money will you have at the end of one year, assuming the bank granted you your required nominal rate? If you are saving to buy a car that costs $11,000 (the cost of the car in 1 year, not right now), will you have enough to buy it? Why or why not
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