Depositors can be individuals and households, financial and nonfinancial firms, or national and local governments. Borrowers are, well, the same. Deposits can be available on demand (a checking account, for example) or with some restrictions (such as savings and time deposits).

1. How does the interest rate encourage household saving?

2. How does household saving foster economic growth?

3. How does saving vary over a person's lifecycle?

4. What are some reasons that people save?

5. Where are some places where people can save?

6.
**Inflation** is a term tossed around a lot in Econ class. What
is inflation?

7.
The formula for calculating **compound interest** is: P(1
+ i)n where P is the **
P**rincipal or amount invested, and i is the nominal **i**nterest
rate, and n is the **n**umber of years. (Scroll down a bit on
this page--there's a link to a Compound Interest Generator!)

Solve the following: Juan invests $50 at 10% for 30 years (compounded annually). How much will Juan have at the end of 30 years?

8.
The **real interest rate** is calculated by subtracting
the expected rate of inflation from the nominal interest rate. That
is, suppose that the nominal rate is 10% and the expected rate of
inflation is 3%. The real rate of interest, r, would equal 7%.

Solve the following: Suppose the nominal interest rate is 10% and the expected rate of inflation is 4%. How much is the real interest rate?