1. Fisher Effect; 20 points) You have an estimate of 4.5% for the real rate of return in the economy and an inflation prediction of 3.4%. According to the Fisher Effect, what is the estimated nominal rate of interest for this economy? (You may provide just the approximate estimated rate. You may also include the full estimate for bonus points.) As a first step, provide the formula needed to calculate this problem.
2. You started a job August 2021 paying $50,000 per year. Your parent started working at a comparable job in May 1996 for $28,500. If the CPI-U price index in May 1996 was 156.6 and the CPI-U index was 273.0 in August 2021, which one of you will be comparably better paid, all else held equal? (comparing the numbers as of 1996 and as of 2021.)