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Suppose Citizens Bank gives you a loan for $50,000 at i = 5% for 1 year at the end of 2013. Also suppose the inflation expectation for 2014 is 2%, πe = 2%.

a. How much will you owe (i.e., principle plus interest) Citizens Bank in nominal terms at the end of 2014? (Use simple interest as we have done in class.)

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M941324

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