Tyra loves to shop at her favorite​ store, Dollar​ Barrel, where she can find hundreds of items priced at exactly​ $1. Tyra has to spend and is thinking of going on a shopping spree at Dollar​ Barrel, but she is also thinking of investing her money. a. Suppose the expected rate of inflation is ​% ​(so next​ year, everything at Dollar Barrel will cost​ $1.01) and Tyra can earn on money that she invests. Approximately what real rate of interest could Tyra earn if she invests her​ money? How many items can she buy at Dollar Barrel​ today, and how many can she buy a year from now if she invests her money and goes shopping​ later? What is the percentage increase in​ Tyra's purchasing power if she waits a year to go​ shopping? Compare your answer to the approximate real interest rate on​ Tyra's investment.
b. Now suppose that the expected inflation rate is ​% and Tyra can earn ​% on money that she invests over the year. What is the approximate real rate of interest that Tyra will​ earn? Calculate the number of items that Tyra could buy next year from Dollar Barrel if she invests her​ money? What is the percentage increase in her purchasing power if she waits a year to go​ shopping? Relate your answer back to​ Tyra's real rate of return.