HOMEWORK2 - JiTT 2.3 CPI(due Tuesday 2/3 2 PM...

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1. How is the Consumer Price Index (CPI) used in the calculation of the real interest rate? The consumer price index is a measure of the average change over time in the prices a typical urban family of four pays for the goods and services they produce. The real interest rate is a correction to the stated interest rate on a loan with the effect of inflation on purchasing power included. The inflation rate is calculated using CPI from this year and subtracting CPI from the last year and dividing that result by CPI from the last year. (CPI current-CPI last)/CPI last. Then the calculated inflation rate is subtracted from the nominal interest rate to give the real interest rate. 2. How is the book's description of the harm from inflation different from what you thought before you read these pages? Or, is the book's description of the harm from inflation already how you thought about the harm from inflation?
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