Real and nominal rates of interest Zane Perelli currently has $100 that he can spend today on socks costing $2.50 each. Alternatively, he could invest the $100 in a risk-free U.S. Treasury security that is expected to earn 9% nominal rate of interest. The consensus forecast of leading economist is a 5% rate of inflation over the coming year.

1. Number of Socks Zane Can Purchase today?

2. If Zane invests the money for 1 year he will have?

3. Expected cost of socks at the end of 1 year with expected inflation?

4. How many socks can Zane purchase at the end of 1 year?

5. In percentage terms, how many more or fewer socks can Zane buy at the end of year 1?

6. What is Zane's real rate of return over the year?

7. How is does the real rate of return relate to the percentage change in Zane's buying power fund in part d?