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aurk to Putisher Mater as-, ?Minatap. Cengage Learning Chegg Study I aided Soleo xD + C Secure httpsing 55725919015819705534195425&elSBN; 9781305650091&snaps; MINDTAP Aplia Homework: Unemployment and Inflation Average: i3 7, Unanticipated changes in the rate of inflation Initually, Crystal eams a salary of $400 per year and Brian earns a salary of $200 per year. Crystal lends Brian $100 for one year at an annual interest rate of 10% with the expectation that the rate of anation wil be 5% during the one-year "Me of the-loan. At the end of the year, Brian makes good on the loan by paying Crystal $110 Consider how the loan repayment affects Crystal and Brian under the following scenarids scenario 1: Suppose a" prices vd saares rise by 5% (as expected) over te course of the year. In the following table, find Crystal's and Brian's new salaries after the 5% roease, and then calculate the $110 payment as a percentage oftheir new salaries. (Hint: Remember that Crystals salary is her income from work and that it does not include the loan payment from Brian.) Value of Crystal's new The $110 payment as a percentage Value of Brian's new h$110 payment as a percentage salary after one year of Crystal's new salary salary after one year of Brian's new salary scenario 2: Consider an unanticipated increase in the rate of inflaton. The rise prices and saines erns out to be 20% over tne course or ehe year rather than 5%. In the following table, find Crystars and Brian's new salaries after the 20% increase, and then caialate the $1 10 payment as a percenage of their new selaries. Value of Crystal's new The $110 payment as a percentage Value of Brian's new The $110 payment as a percentage salary after one year of Crystal's new salary salary after one year of Brian's new salary An unanticipated increase in the rate of inflation benef ts and hams Continue wthout saving 2 3 4 5 6Explanation / Answer
Question 7
Scenario 1
Inflation is 5%
Current salary of Crystal = $400
Current salary of Brian = $200
Now, salary rises by 5%.
New salary of Crystal = $400 + ($400 * 0.05) = $400 + $20 = $420
New salary of Brian = $200 + ($200 * 0.05) = $200 + $10 = $210
$110 as percentage of Crystal's new salary = (110/420) * 100 = 26.19%
$110 as percentage of Brian's new salary = (110/210) * 100 = 52.38%
Following is the complete table -
Scenario 2
Inflation turns out to be is 20%
Current salary of Crystal = $400
Current salary of Brian = $200
Now, salary rises by 20%
New salary of Crystal = $400 + ($400 * 0.20) = $400 + $80 = $480
New salary of Brian = $200 + ($200 * 0.20) = $200 + $40 = $240
$110 as percentage of Crystal's new salary = (110/480) * 100 = 22.91%
$110 as percentage of Brian's new salary = (110/240) * 100 = 45.83%
Following is the complete table -
Thus,
An unanticipated increase in the rate of inflation benefits Brian and harms Crystal.
Value of Crystal's new salary after one year The $110 payment as percentage of Crystal's new salary Value of Brian's new salary after one year The $110 payment as percentage of Brian's new salary $420 26.19% $210 52.38%Related Questions
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