assignment_1

# assignment_1 - Economics 303(02 Fall 2010 Assignment#1 Due...

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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 π 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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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 periodicity over the period 1915-2009.
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