Macroeconomics 12th Edition by Rudiger Dornbusch, Stanley Fischer ,Richard Startz

تمرين 1

The effect of inflation accumulates over time in the same way as does compound interest. If inflation is
in year t and
in year t + 1, then the 2-year inflation rate equals
which is approximately equal to
but not exactly.
a. Suppose inflation runs 2 percent per year 2 years in a row Give the approximate and exact 2-year inflation rates. Now do the same if the inflation rate were 7 percent.
b. Suppose inflation runs 2 percent per year for 40 years in a row. Give the approximate and exact 40-year inflation rates. Now do the same if the inflation rate were 7 percent.