5. Interest, inflation, and purchasing power Suppose Becky is an avid reader and buys only mystery novels. Becky deposits $1,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a mystery novel is priced at $10.00. Initially, the purchasing power of Becky's $1,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Becky'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 mystery novel. For example, if you find that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery novels under the assumption that Becky will not buy seven-tenths of a mystery novel. Annual Inflation Rate 0% 5% 10% Number of Novels Becky Can Purchase after One Year Real Interest Rate % % When the rate of inflation is less than the interest rate on Becky's deposit, the purchasing power of her deposit over the course of the year.5. Interest, inflation, and purchasing power Suppose Becky is an avid reader and buys only mystery novels. Becky deposits $1,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a mystery novel is priced at $10.00. Initially, the purchasing power of Becky's $1,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Becky'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. 100 Hint: Round your answers in the first row down to the nearest mys vel. For example, if you find that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery 105 under the assumption that Becky will not buy seven-tenths of a mystery novel. 135 nnual Inflation Rate 190 5% 10% Number of Novels Becky Can Purchase after One Year Real Interest Rate % When the rate of inflation is less than the interest rate on Becky's deposit, the purchasing power of her deposit V over the course of the year.5. Interest, inflation, and purchasing power Suppose Becky is an avid reader and buys only mystery novels. Becky deposits $1,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a mystery novel is priced at $10.00. Initially, the purchasing power of Becky's $1,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Becky'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. 100 Hint: Round your answers in the first row down to the nearest mystery novel. F ple, if you find that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery novels under 105 sumption that Becky will not buy seven-tenths of a mystery novel. 135 Annu tion Rate 190 0% 10% Number of Novels Becky Can Purchase after One Year Real Interest Rate % When the rate of inflation is less than the interest rate on Becky's deposit, the purchasing power of her deposit over the course of the year.5. Interest, inflation, and purchasing power Suppose Becky is an avid reader and buys only mystery novels. Becky deposits $1,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a mystery novel is priced at $10.00. Initially, the purchasing power of Becky's $1,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Becky'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. 95 Hint: Round your answers in the first row down to the nearest mystery novel. For example, if y that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery novels under the assumption 100 ecky will not buy seven-tenths of a mystery novel. 135 Annual Inflation Ra 190 0% 5% Number of Novels Becky Can Purchase after One Year Real Interest Rate % When the rate of inflation is less than the interest rate on Becky's deposit, the purchasing power of her deposit over the course of the year.5. Interest, inflation, and purchasing power Suppose Becky is an avid reader and buys only mystery novels. Becky deposits $1,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a mystery novel is priced at $10.00. Initially, the purchasing power of Becky's $1,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Becky'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 mystery novel. For example, if you find that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery novels under the assumption that Becky will not buy seven-tenths of a mystery novel. Annual Inflation Rate 0% 5% 10% remains the same Number of Novels Becky Can Purchase after One Year falls Real Interest Rate % rises When the rate of inflation is less than the interest rate on Becky's deposit, the purchasing power of her deposit over the course of the year
