3. Below are some income and Consumer Price Index data for Bill living in the U.S.
Year
Bill’s Nominal Income
CPI
2010
$100,000
200
2011
$102,000
210
2012
$104,000
230
a) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2010 measured in base year dollars. Please show the work done to get your answer. Please calculate your answer to the nearest dollar.
b) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2011 measured in base year dollars. Please show the work done to get your answer. Please calculate your answer to the nearest dollar.
c) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2012 measured in base year dollars. Please show the work done to get your answer. Please calculate your answer to the nearest dollar.
d) In what year was Bill’s Real Income the highest?
e) Using the information above calculate the inflation rate from 2011 to 2012. Please show the work done to get your answer. Please calculate your answer to the second decimal place (hundredths place).
f) In one factual sentence please state what information your answer in (e) above tells us. (I did not want any opinion of whether you think your answer is high or low.)
In other words, the inflation rate you calculated in (e) above tells us what information?
g) If Sue lent Bill $20,000 at the start of 2001 for 1 year and charged Bill a nominal interest rate of 5.00%, then please calculate the real interest rate that Sue earned for this 1 year loan. Please show how you got your answer. Please calculate your answer to the second decimal place (hundredths place)
h) If Sue wanted to earn a real interest rate (return) of 5.00% for the loan mentioned above, then what nominal interest rate should she have charged Bill? Please show how you got your answer. Please calculate your answer to the second decimal place (hundredths place).
