THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 144

112

PA R T I I

Financial Markets

4. Get the monthly data from 1976 to 2009 on the threemonth T-bill rate (CANSIM series V122531) from the
Textbook Resources area of the MyEconLab.
a. Plot the nominal interest rate, it.

b. Calculate the change in it.
*it * it +1 , it
c. Plot *it. Has the nominal interest rate become
more or less volatile over the sample period?

WEB EXERCISES
1. One of the largest single influences on the level
of interest rates is inflation. There are a number
of sites that report inflation over time. Go to www.
bankofcanada.ca/en/cpi.htm and review the data.
What has the average rate of inflation been since
1995? What year had the lowest level of inflation?
What year had the highest level of inflation?
2. Increasing prices erode the purchasing power of
the dollar. It is interesting to calculate how much
goods would have cost at some point in the past after
adjusting for inflation. Click on www. bankofcanada.ca/en/inflation_calc.htm. What is the cost
today of a car that cost $10 000 the year that you were
born?

3. One of the points made in this chapter is that inflation

erodes investment returns. Go to www.moneychimp.
com/articles/econ/inflation_calculator.htm and
review how changes in inflation alter your real
return. What happens to the difference between the
adjusted value of an investment compared to its
inflation-adjusted value as:
a. Inflation increases?
b. The investment horizon lengthens?
c. Expected returns increase?

Be sure to visit the MyEconLab website at www.myeconlab.com.This online
homework and tutorial system puts you in control of your own learning with
study and practice tools directly correlated to this chapter content.
On the MyEconLab website you will find the following appendices and mini-case for this chapter:
Appendix 5.1: Models of Asset Pricing
Appendix 5.2: Applying the Asset Market Approach to a Commodity Market:The Case of Gold
Mini-Case 5.1:The Behaviour of Interest Rates