Suppose that fiat money stock changes according to the rule Mt = 1.5Mt−1, and the number of young people born in each generation evolves according to Nt = 1.25Nt−1. Let the gross real interest rate be 1.1.

(a) Calculate the gross and net inflation rates.

(b) Calculate the gross and net real rates of return on fiat money.

(c) Calculate the gross and net nominal interest rates.

(d) Calculate the net nominal interest rate using the approximation: R− 1 = (r − 1) + (pt+1/pt − 1).

Compare your answer here with the one in part c.

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The rate of growth of money stock z 15 The rate of growth of population n 1... View the full answer