Consider a simple economy that produces only three products: hot dogs, torches and golf balls. Use the information in the following table to calculate the inflation rate for 2018, as measured by the consumer price index.ProductQuantityBase Year Price (2009)Price (2017)Price (2018)Hot dogs10$1.00$1.50$1.75Torches15$5.00$7.00$6.75Golf balls8$2.00$3.00$3.50 Now assume an investor is negotiating with the bank to pay either a 1.5% interest rate or a 2.0% interest rate on loans advanced. Will she/he be better off with the first or second option? Explain carefully.

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ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 3.7P

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Consider a simple economy that produces only three products: hot dogs, torches and golf balls. Use the information in the following table to calculate the inflation rate for 2018, as measured by the consumer price index.

Product	Quantity	Base Year Price (2009)	Price (2017)	Price (2018)
Hot dogs	10	$1.00	$1.50	$1.75
Torches	15	$5.00	$7.00	$6.75
Golf balls	8	$2.00	$3.00	$3.50

Now assume an investor is negotiating with the bank to pay either a 1.5% interest rate or a 2.0% interest rate on loans advanced. Will she/he be better off with the first or second option? Explain carefully.

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