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Economics 303(02)
Fall 2010
Assignment #1
Due Friday October 15
(Please note new due date)
All assignments are to be handed in at the Economics main office, 4
th
floor, Social
Sciences Building, by 4:00 P.M.
1.
In class, we defined the real interest rate as:
t
t
t
i
r
π

≈
Where
t
i
is the nominal interest rate,
t
is the inflation rate and
≈
denotes
“approximately equal to”.
Define the nominal interest rate as:
B
t
B
t
B
t
t
P
P
P
i

=
+
1
Where
B
P
is the nominal price of a bond and
t
and
t+1
represent different time periods.
Of course, the real price of a bond in, say, period t equals the nominal price divided by
the price level
t
B
t
P
P
Therefore, the real interest rate can be written as
t
B
t
t
B
t
t
B
t
t
P
P
P
P
P
P
r

=
+
+
1
1
Show how the definition of the real interest rate used in class can be derived from the
above expression.
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View Full Document 2.
Go to the CANSIM II database and retrieve the series Canadian Consumer Price
Index, All Items.
Use this series to calculate the inflation rate with annual
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This note was uploaded on 12/01/2010 for the course ECON 303 taught by Professor Tracey during the Spring '08 term at University of Calgary.
 Spring '08
 TRACEY
 Economics

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