Assume that Sarah agrees to lend $100 to Sam forone year. Sam agrees to pay Sarah $117 at the end ofthe year. If inflation over that one year is 8%, whatreal rate of interest does Sarah earn on her $100?

As it is given that Sarah lends $100 for one year to Sam Sam after one year pays = $117 inflation…

Assume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $117 at the end c the year. If inflation over that one year is 8%, what real rate of interest does Sarah earn on her $100?

Assume that Sarah agrees to lend $100 to Sam for one year. Sam agrees to pay Sarah $117 at the end c the year. If inflation over that one year is 8%, what real rate of interest does Sarah earn on her $100?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 33P: The index number representing the price level changes from 110 to 115 in one year and then from 115...

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Question

Assume that Sarah agrees to lend $100 to Sam for
one year. Sam agrees to pay Sarah $117 at the end of
the year. If inflation over that one year is 8%, what
real rate of interest does Sarah earn on her $100?

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