Score: 0 of 25 pts 1 of 4 (2 complete) HW Score: 25%, 25 of 100 pts P6-6 (similar to) Question Help Help Nominal and real rates Tyra loves to shop at her favorite store, Dollar Barrel, where she can find hundreds of items priced at exactly $1. Tyra has $220 to spend and is thinking of going on a shopping spree at Dollar Barrel, but she is also thinking of investing her money (Ignore all sales and income taxes.) a. Suppose the expected rate of inflation is 1% (so next year, everything at Dollar Barrel will cost $1.01) and Tyra can earn 5% on money that she invests Approximately what real rate of interest could Tyra earn if she invests her money? How many items can she buy at Dollar Barrel today, and how many can she buy a year from now if she invests her money and goes shopping later? What is the percentage increase in Tyra's purchasing power if she waits a year to go shopping? Compare your answer to the approximate real rate of interest on Tyra's investment. b. Now suppose that the expected inflation rate is 10% and Tyra can earn 18% on money that she invests over the year What is the approximate real rate of interest that Tyra will earn? Calculate the number of items that Tyra could buy next year from Dollar Barrel if she invests her money. What is the percentage increase in her purchasing power if she waits a year to go shopping? Relate your answer back to Tyra's real rate of return a. The real rate of interest that Tyra could earn if she invests her money, approximately, is % (Round to the nearest whole percent.) Question Viewer Enter your answer in the answer box and then click Check Answer ? parts remaining Clear All