1. (Fisher Effect) You have an estimate of 4% for the real rate of return in the economy and an inflation prediction of 2%. 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. (Price Index) You are offered a job paying $45,000 starting May 2020. Your parent started working at a comparable job in May 1996 for $24,000. If the CPI price index in May 1996 were 188.27 (note: I just made up that value) and the CPI price index is expected to be 244.89 (again, I just make up that value), which one of you will be comparably better paid, all else held equal? (Note: you may earn bonus points by comparing the numbers as of 1996 and as of 2020.)