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5. Interest, inflation, and purchasing power Suppose Latasha is a cinephile and buys only movie tickets. Latasha deposits \$3,000 in a bank account that pays an annual nominal interest rate of 5%....

5.Â Interest,Â inflation,Â andÂ purchasingÂ power
SupposeÂ LatashaÂ isÂ aÂ cinephileÂ andÂ buysÂ onlyÂ movieÂ tickets.Â LatashaÂ depositsÂ \$3,000Â inÂ aÂ bankÂ accountÂ thatÂ paysÂ anÂ annualÂ nominalÂ interestÂ rateÂ of
5%.Â AssumeÂ thisÂ interestÂ rateÂ isÂ fixedâ€”thatÂ is,Â itÂ won'tÂ changeÂ overÂ time.Â AtÂ theÂ timeÂ ofÂ herÂ deposit,Â aÂ movieÂ ticketÂ isÂ pricedÂ atÂ \$10.00.
Initially,Â theÂ purchasingÂ powerÂ ofÂ Latasha'sÂ \$3,000Â depositÂ is movieÂ tickets.
ForÂ eachÂ ofÂ theÂ annualÂ inflationÂ ratesÂ givenÂ inÂ theÂ followingÂ table,Â firstÂ determineÂ theÂ newÂ priceÂ ofÂ aÂ movieÂ ticket,Â assumingÂ itÂ risesÂ atÂ theÂ rateÂ of
inflation.Â ThenÂ enterÂ theÂ correspondingÂ purchasingÂ powerÂ ofÂ Latasha'sÂ depositÂ afterÂ oneÂ yearÂ inÂ theÂ firstÂ rowÂ ofÂ theÂ tableÂ forÂ eachÂ inflationÂ rate.Â Finally,
enterÂ theÂ valueÂ forÂ theÂ realÂ interestÂ rateÂ atÂ eachÂ ofÂ theÂ givenÂ inflationÂ rates.
Hint:Â RoundÂ yourÂ answersÂ inÂ theÂ firstÂ rowÂ downÂ toÂ theÂ nearestÂ movieÂ ticket.Â ForÂ example,Â ifÂ youÂ findÂ thatÂ theÂ depositÂ willÂ coverÂ 20.7Â movieÂ tickets,
youÂ wouldÂ roundÂ theÂ purchasingÂ powerÂ downÂ toÂ 20Â movieÂ ticketsÂ underÂ theÂ assumptionÂ thatÂ LatashaÂ willÂ notÂ buyÂ sevenÂ­tenthsÂ ofÂ aÂ movieÂ ticket.

1.Â CalculatingÂ inflationÂ usingÂ aÂ simpleÂ priceÂ index
ConsiderÂ aÂ fictionalÂ priceÂ index,Â theÂ CollegeÂ StudentÂ PriceÂ IndexÂ (CSPI),Â basedÂ onÂ aÂ typicalÂ collegeÂ studentâ€™sÂ annualÂ purchases.Â SupposeÂ theÂ following
tableÂ showsÂ informationÂ onÂ theÂ marketÂ basketÂ forÂ theÂ CSPIÂ andÂ theÂ pricesÂ ofÂ eachÂ ofÂ theÂ goodsÂ inÂ 2014,Â 2015,Â andÂ 2016.
TheÂ costÂ ofÂ eachÂ itemÂ inÂ theÂ basketÂ andÂ theÂ totalÂ costÂ ofÂ theÂ basketÂ areÂ shownÂ forÂ 2014.

4.Â InflationÂ andÂ interestÂ rates
TheÂ followingÂ tableÂ showsÂ theÂ averageÂ nominalÂ interestÂ ratesÂ onÂ sixÂ­monthÂ TreasuryÂ billsÂ betweenÂ 1986Â andÂ 1990,Â whichÂ determinedÂ theÂ nominal
interestÂ rateÂ thatÂ theÂ U.S.Â governmentÂ paidÂ whenÂ itÂ issuedÂ debtÂ inÂ thoseÂ years.Â TheÂ tableÂ alsoÂ showsÂ theÂ inflationÂ rateÂ forÂ theÂ yearsÂ 1986Â toÂ 1990.Â (All
ratesÂ areÂ roundedÂ toÂ theÂ nearestÂ tenthÂ ofÂ aÂ percent.)

3.Â ComparingÂ salariesÂ fromÂ differentÂ times
ConsiderÂ golfersÂ whoÂ ledÂ theÂ ProfessionalÂ Golfersâ€™Â AssociationÂ ofÂ AmericaÂ (PGA)Â inÂ winningsÂ atÂ differentÂ pointsÂ inÂ time.Â NoteÂ thatÂ theÂ winningsÂ are
ToÂ convertÂ theÂ originalÂ earningsÂ ofÂ Casper,Â Miller,Â andÂ Pavin,Â useÂ theÂ formulaÂ forÂ convertingÂ dollarÂ figuresÂ fromÂ anÂ earlierÂ eraÂ intoÂ yearÂ 2000Â U.S.
dollars.Â UsingÂ thoseÂ figures,Â fillÂ inÂ theÂ followingÂ table,Â makingÂ sureÂ toÂ roundÂ yourÂ responsesÂ toÂ theÂ nearestÂ U.S.Â dollar.

Answered Same Day Nov 12, 2019

Solution

David answered on Dec 27 2019
tfth_c_636461233994195989_26236_1
Consider golfers who led the Professional Golfersâ€™ Association of America (PGA) in winnings at different points in time. Note that the winnings are nominal figures (unadjusted for inflation).
To convert the original earnings of Casper, Miller, and Pavin, use the formula for converting dollar figures from an earlier era into year 2000 U.S.
dollars. Using those figures, fill in the following...
SOLUTION.PDF