Suppose Caroline is a cinephile and buys only movie tickets. Caroline deposits $3000 in a bank acct that pays an annual interest rate of 20%. You can assume that this interest rate is fixed-that is, it won’t change over time. At the time of her deposit, a movie ticket is priced at $10.00.

Initially, the purchasing power of Caroline’s $3000.00 deposit is a. 3,000 b. 50 c. 220
d. 300 e. 200 movie tickets.
The price of a movie ticket rises at the rate of inflation. For each of the annual inflation rates in the following table, select the corresponding purchasing power of Caroline’s deposit after one year, and enter the value for the real interest rate.
HINT: Round your answers down to the nearest movie ticket. For ex: if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing poser down to 20 movie tickets under the assumption that Caroline will not buy seven-tenths of a movie ticket.
If the annual inflation rate is at 0% what would be the number of tickets Caroline can purchase after one yr.
a.230
b. 53
c.360
d. 220
If the annual inflation rate is at 20%
a. 150
b. 300
c. 50
d. 200
If the annual inflation rate is at 25%
a. 48
b. 288
c. 192
d. 196
If the annual inflation rate is at 0% what is the real interest rate
a. 10%
b. -20%
c. 0%
If the annual inflation rate is at 20% what is the real interest rate
a. 0%
b. -20%
c. 10%
d. 20%
If the annual inflation rate is at 25% what is the real interest rate
a. -25%
b. 10%
c. 20%
d. -5%
When the rate of inflation is less than the interest rate on Caroline’s deposit, the purchasing power of her deposit a. falls b. remains the same c. rises over the course of the year.

abcdbc

seta

To find the initial purchasing power of Caroline's $3000 deposit, we divide the initial amount by the price of a movie ticket, which is $10.

Initial purchasing power = $3000 / $10 = 300 movie tickets

Now, let's calculate the purchasing power after one year for each given inflation rate.

1. If the annual inflation rate is 0%:
The purchasing power would remain the same, so the answer is c. 360 movie tickets.

2. If the annual inflation rate is 20%:
To find the new ticket price after an inflation rate of 20%, we multiply the original ticket price by 1 + (inflation rate / 100).
New ticket price = $10 * (1 + (20/100)) = $12

The new purchasing power after one year is the initial deposit divided by the new ticket price.
Purchasing power = $3000 / $12 = 250 movie tickets
The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate (20% in this case).
Real interest rate = 20% - 20% = 0%
So, the answer is a. 150 movie tickets and 0% real interest rate.

3. If the annual inflation rate is 25%:
New ticket price = $10 * (1 + (25/100)) = $12.50

Purchasing power = $3000 / $12.50 = 240 movie tickets
Real interest rate = 20% - 25% = -5%
So, the answer is a. 48 movie tickets and -5% real interest rate.

Finally, when the rate of inflation is less than the interest rate on Caroline's deposit, her purchasing power rises over the course of the year. Therefore, the answer is c. rises over the course of the year.