Homework (Ch 11) s. Interest, inflution, and chasing power Suppose Crystal is a
ID: 1158857 • Letter: H
Question
Homework (Ch 11) s. Interest, inflution, and chasing power Suppose Crystal is a dinephile and buys only movie tickets. Crystall deposits $3,000 in a bank account that pays an annual nominal interest ate of 10%. Asume this interest rate is fixed-that is, it won't dange over tim. At the time of her deposit, a movie boit is pend at $15.00. Iniially, the purchasing power of Crystall's $3,000 deposit is movie tickets For each of the annual inflation rates given in the folowing table, first deermine the new price of a movie at hte of nfation Then enter the comesoonding punchasing pewer of Crystal's depesit after one yeur in the rst row of the tabl for hate. Fraly enter the value for the real interest rate af each of the given inflion ates Hint: Round your answers in the frst row down to the nearest movle ticket. For example, i you find that the deposit will cover 20.7 mavie tiks would round the purchasing power down to 20 movle ickets under the assumption tht Crystal will not buy seen tenths of a moe ticket Anual ation Number ol Tkkets Crystal Can Parchase after One Year eof nfaion is les than the ist a on Crystasthe purchasing sower of her desost over ow E R TExplanation / Answer
With deposits of $3000 Purchasing power will be given as 200 tickets because=$3000/15=200 Movie tickets
Now when we have inflation rate=0% then Price of movie ticket will remain the same
Hence after 1 year deposit would be 3000(1.1)=$3300 hence we cany buy $3300/15=220 movie tickets
Now inflation is 10% then new movie ticket price=15(1.1)=16.5 and deposit also growing with 10% hence no imapct and same number of tickets can be bought as before that is 200 tickets
When infltion is 13% new movie ticket price=15(1.13)=$16.95
Deposit grows with 10% hence Purchasing power is 3300/16.95=194.69 =194 tickets
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