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The problem you have provided is asking to calculate how inflation and real interest rates affect purchasing power over time. Let me break it down step by step for you:

### Summary of the Problem:
- **Diamond deposits $2,000** in a savings account, which pays an annual **nominal interest rate of 10%**.
- Diamond is concerned with **purchasing power**—in terms of the number of tote bags they can buy after one year. Initially, $2,000 buys a certain number of tote bags.
- Inflation affects the price of tote bags, so as inflation rises, the purchasing power of the deposit declines.

### Steps to Solve:
1. **Price of Tote Bags After Inflation:**
   The price of tote bags increases with inflation. So, for each inflation rate, we need to compute how the price has increased after one year.

   - If inflation is 0%, the price of tote bags stays the same.
   - If inflation is higher, the price of tote bags increases by that percentage.

2. **Purchasing Power After One Year:**
   The savings earn 10% interest. So after one year, the amount in Diamond's account becomes $2,200. However, with inflation, the purchasing power decreases.
   
   - We need to compute how many tote bags Diamond can purchase after one year based on the new price of the tote bags, which will have increased due to inflation.

3. **Real Interest Rate:**
   The **real interest rate** adjusts the nominal interest rate by subtracting inflation. Real interest rate = Nominal interest rate - Inflation rate.

   This helps us understand how much Diamond's purchasing power has effectively grown or shrunk after one year.

### Let's Calculate:

#### a) **When the inflation rate is 0%:**
- **Price of tote bags:** No change, so stays the same.
- **Purchasing power:** The nominal interest rate is 10%, and there is no inflation. So after one year, Diamond can purchase **10% more tote bags**.

#### b) **When the inflation rate is 10%:**
- **Price of tote bags:** The price rises by 10%.
- **Purchasing power:** Diamond's money also grows by 10%, but the price increase cancels out the interest earned. So Diamond can purchase the **same number of tote bags** as initially.

#### c) **When the inflation rate is 13%:**
- **Price of tote bags:** The price rises by 13%.
- **Purchasing power:** Diamond's money grows by 10%, but inflation has risen more than that. Therefore, the purchasing power has **decreased**, and Diamond can buy fewer tote bags than initially.

### Now, based on these explanations, you can calculate the number of tote bags in the table provided.

Would you like me to fill out the exact calculations and numbers for each of the inflation rates (0%, 10%, 13%) and the corresponding real interest rates?

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### Relative Questions:
1. How do you calculate the real interest rate using nominal interest and inflation rates?
2. What happens to purchasing power when inflation outpaces interest rates?
3. Can you explain why a 10% inflation results in the same purchasing power as initially deposited?
4. How would hyperinflation (e.g., 50%) affect Diamond's purchasing power?
5. Why is the real interest rate important in understanding the effect of inflation?

**Tip:** Inflation erodes the value of money over time, so it’s essential to consider real interest rates, not just nominal ones, when making financial decisions.

Suppose Diamond is an avid reader and buys only reusable tote bags. Diamond deposits $2,000 into a savings account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a reusable tote bag has a price of $100. Initially, Diamond’s $2,000 deposit has a purchasing power of 20 reusable tote bags. For each of the annual inflation rates given in the following table, determine the new price of a reusable tote bag, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Diamond’s deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates.

Learn how to calculate purchasing power and real interest rates with a detailed example. Diamond deposits $2,000 at a nominal interest rate of 10%, buying reusable tote bags. Analyze the effects of 0%, 10%, and 13% inflation rates on her purchasing power. Understand the formulas for adjusting for inflation and computing real interest rates. Suitable for Grades 10-12.

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