Note: the values from 1.7.1 are given again in this problem

1.7.4 Using the values of r and i in Exercise 1.7.1 suppose Smith borrows 100,000 for a year at i=.10, and buys 100,000 units of a certain item that has a current cost of 1 per unit. Suppose the price of this item is tied to the rate of inflation (r = .15). One year from now Smith sells the items at the inflated price. What is his net gain on this transaction? (This illustrates that during times when inflation rates exceed interest rates, there is great incentive to borrow at the negative real rate of interest. This demand by borrowers is a factor in the inevitable correction that leads to the interest rate becoming larger than the inflation rate.)