Consider the case of an individual who lives for two periods, earns an income nominal of $ 10,000 in each of them, and has an initial and final amount of null assets. The nominal interest rate, R, of loans in dollars is 12% and the rate of expected inflation between the two periods is 8%.

Suppose the price level is 1 in the first period.

a) What is the real value of the rent in period 1?

b) What is the maximum amount of dollars that he could borrow in period 1? Find the real value of this amount and add it to the rental value of period 1 to find the maximum amount of (actual) consumption possible in this period.

c) What is the price level in period 2? What is the real value of the income from period 2?