1. Review the Appendix to Chapter 1 "Measuring Economic Activity, Prices, and the Inflation Rate" in Money, Banking, and Financial Markets, especially the section "The GDP Deflator and the Inflation Rate."
2. Review "Tools of the Trade: The Consumer Price Index" in Chapter 2.
3. Review the Fisher Equation in Chapter 4 in Money, Banking, and Financial Markets:

Equation (10) i = r + e

where

i = nominal interest rate

r = real interest rate

e = expected inflation.

1. Select a year in each of the following decades: 1970s, 1990s, and 2010s, and collect the data requested below. (Please notify your instructor should any of the suggested links below not work so that substitutes may be found, and if you find any working alternatives for the requested data please share the links with the class.)
2. For historical rates go to FRED Economic Research(Links to an external site.) Click on 1-Year Treasury Constant Maturity Rate(Links to an external site.) and then click on "Max" and scroll on the chart line to find a nominal interest rate at the beginning of any year in each of the following decades:

(See Appendix B to Chapter 1 on "Using FRED" which is the database at the Federal Reserve Bank of St. Louis.)

	First Business Day in Year Chosen (A)	One-Year Nominal Treasury Rate on that Day (B)
1970s
1990s
2010s

1. Next find inflation data that occurred in each of the years you chose after the first business day of each year:

• For annual CPI (%) go to FRED Economic Research(Links to an external site.) and click on Inflation, consumer prices for the United States(Links to an external site.).
• For annual GDP implicit price deflator go to most recent Economic Report of the President(Links to an external site.) where Table B-3 (on p. 568 of the 2017 report/p. 552 of the 2017 report pdf file) provides annual "Percent change from preceding period in the GDP Implicit Price Deflator." Use the subsequent year's number for your chosen year's calculation.

	First Business Day in Year Chosen (A)	One-Year Nominal Treasury Rate on that Day (B)	Chosen Year's Annual CPI (%) (C)	Chosen Year's Annual Implicit Price Deflator (%) (D)
1970s
1990s
2010s

1. Based on the Fisher equation, calculate the actual real rate of interest realized in each year based on both measures of inflation.

	First Business Day in Year Chosen (A)	One-Year Nominal Treasury Rate on that Day (B)	Chosen Year's Annual CPI (%) (C)	Chosen Year's Annual Implicit Price Deflator (%) (D)	Year's Real Rate based on CPI = (B - C)	Year's Real Rate based on Implicit Price Deflator = (B - D)
1970s
1990s
2010s

Based on your results, answer the following questions:

• In which years was it better to be a borrower? Explain.
• In which years was it better to be an investor? Explain.