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Initially. Eleanor earns a salary of $600 per year and Darnell earns a salary of $400 per year. Eleanor lends Darnell $200 for one year

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Initially. Eleanor earns a salary of $600 per year and Darnell earns a salary of $400 per year. Eleanor lends Darnell $200 for one year at an annual interest rate of 12% with the expectation that the rate of inflation will be 10% during the one-year life of the loan. At the end of the year, Darnell makes good on the loan by paying Eleanor $224. Consider how the loan repayment affects Eleanor and Darnell under the following scenarios. Scenario 1: Suppose all prices and salaries rise by 10% (as expected) over the course of the year. In the following table, find Eleanor's and Darnell's new salaries after the 10% increase, and then calculate the $224 payment as a percentage of their new salaries. (Hint: Remember that Eleanor's salary is her income from work and that it does not include the loan payment from Darnell.) Value of Eleanor's new The $224 payment as a percentage Value of Darnell's new The $224 payment as a salary after one year of Eleanor's new salary salary after one year percentage of Darnell's new salary Scenario 2: Consider an unanticipated decrease in the rate of inflation. The rise in prices and salaries turns out to be 5% over the course of the year rather than 10%. In the following table, find Eleanor's and Darnell's new salaries after the 5% increase, and then calculate the $224 payment as a percentage of their new salaries. Value of Eleanor's new The $224 payment as a percentage Value of Darnell's new The $224 payment as a percentage salary after one year of Eleanor's new salary salary after one year of Darnell's new salary An unanticipated decrease in the rate of inflation benefits and harms

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