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.

What is the price level in period 2 and what is the real value of the income from period 2?