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Macroeconomics 12th Edition by Rudiger Dornbusch, Stanley Fischer ,Richard Startz
Edition 12ISBN: 978-1259070969Macroeconomics 12th Edition by Rudiger Dornbusch, Stanley Fischer ,Richard Startz
Edition 12ISBN: 978-1259070969 Exercise 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.
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.
Explanation
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Calculate the Inflation rate for 2 years...
Macroeconomics 12th Edition by Rudiger Dornbusch, Stanley Fischer ,Richard Startz
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