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Suppose a lender and a borrower signed a $1,000 loan contract in 2019 for one year at a market (nominal) interest rate of 10% when
Suppose a lender and a borrower signed a $1,000 loan contract in 2019 for one year at a market (nominal) interest rate of 10% when apples (the only good in the economy) were sold for $1 each. What was the real purchasing power that the lender lent to the borrower? Calculate the amount of the loan repayment in 2020. Assume inflation rate between 2019 and 2020 is 5%. How much real purchasing power does the lender get back in 2020? What is the real rate of return (do not use the Fisher equation)? Use results from part (b) to show how close is the approximation of the Fisher equation? Repeat part (b) with an inflation rate of 15%. How do you relate results from part (d) to the boom of a specific asset market
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