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8 October, 08:26

Suppose Alyssa is a sports fan and buys only baseball caps. Alyssa deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $15.00. Initially, the purchasing power of Alyssa's $3,000 deposit

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  1. 8 October, 11:38
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    is equal to 200 baseball caps.

    given the following inflation rates, how does the purchasing power of Alyssa change:

    inflation rates for 1 year 5% 10% 15%

    new price of caps $15.75 $16.50 $17.25

    in 1 yer Alyssa will have $3,300 $3,300 $3,300

    purchasing power 209 200 191
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