(Solved): 5. Interest, inflation, and purchasing power Suppose Diamond is an avid reader and buys only reusab ...

5. Interest, inflation, and purchasing power Suppose Diamond is an avid reader and buys only reusable tote bagses. Diamond deposits $\$2,000$ into a savings account that pays an annual nomina interest rate of $10\%$. Assume this interest rate is foced, and so it will not change over time. On the day she makes her deposit, suppose that a reusable tote bags has a price of $\$10.00$, Initially, Diamond's $\$2,000$ deposit has a purchasing power of revsable tote bagses. For each of the annual inflation rates given in the following table, first determine the new price of a reusable tote bags, assuming it nises at the rate of infiation. Then enter the correspanding purchasing power of Diamond's deposit after one year in the first row of the table for each inflation rate. Finaly, enter the value for the real interest rate at coch of the given inflation rates: Hint: Round your answers in the first row down to the nearest reusabie tote bags. For example, if you find that the deposit will cover 20,7 reusable tote bagses, you would round the purchasing power down to 20 reusable tote bagses under the assumption that Diamond will not buy seven-tenths of a reusable tote bags. When the rate of infiaton is equal to the irserest rate on Diamond's deposit, the purchasing power of her deposit course of the year. over the