Question 4

4. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 2014 and 2018, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 2014 to 2018. (All rates rounded to the nearest 0.1 percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 2014 0.1 1.6 2015 0.2 0.1 2016 0.5 1.3 2017 1.1 2.1 2018 2.1 2.4 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 2014 to 2018. Next, use the green points (triangle symbol) to plot the real interest rates for those years. (?) 3.0 Nominal Interest Rate 2.0 Real Interest Rate 1.0 INTEREST RATE (Percent) 0 -1.0 20 2013 2014 2015 2016 2017 2018 2019 YEAR According to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O 2014 O 2015 2016 O 2017 O 20185. Interest, inflation, and purchasing power Suppose Dalia is a sports fan and buys only football tickets. Dalia deposits $3,000 into a savings account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a football ticket has a price of $15.00. Initially, Dalia's $3,000 deposit has a purchasing power of football tickets. For each of the annual inflation rates given in the following table, first determine the new price of a football ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Dalia's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest football ticket. For example, if you find that the deposit will cover 20.7 football tickets, you would round the purchasing power down to 20 football tickets under the assumption that Dalia will not buy seven-tenths of a football ticket. Annual Inflation Rate 0% 5% 10% Number of Tickets Dalia Can Purchase after One Year Real Interest Rate 9% When the rate of inflation is less than the interest rate on Dalia's deposit, the purchasing power of her deposit over the course of the year. Grade It Now Save & Continue