Macroeconomics

Which of the examples provides the best evidence that inflation has occured?

A person whose salary has increased is able to purchase fewer goods and services

Please match the descriptions with the correct price index.

A price index based on wages in the labor market: employment cost index A broad price index based on all the components of GDP: GDP deflator A price index based on the cost of common inputs for firms: Producer Price Index A measure of inflation based on the cost of the goods that households typically purchase: Consumer Price Index A measure of inflation based on the price of imports or exports: International Price Index

Use the information in the table to calculate a consumer price index (CPI) and the inflation rate. The base year is 1975. Round answers to two decimal places. Market basket: A dozen eggs Calculator Microwave oven Quantity: 25 18 6 1975 Prices: $0.90 $13.00 $160.00 1976 Prices: $1.50 $16.00 $200.00 What is the CPI for 1975? What is the CPI for 1976? What is the inflation rate for 1976?

CPI for 1975: 100 CPI for 1976: 125.40 Inflation rate for 1976: 25.40%

The table shows the cost of a fixed basket of goods that a typical urban consumer would buy in the economy of Kindleberger. The base period for the consumer price index (CPI) is the year 2000. Please specify answers to two decimal places. Year: Cost of Basket of Goods: 2000 $5,150.00 2011 $8,500.00 2012 $4,725.00 What is the CPI for 2000? What is the CPI for 2011? What is the CPI for 2012?

CPI for 2000: 100 CPI for 2011: 165.04 CPI for 2012: 91.74

What is the difference between measures of inflation which only use CPI and the core measures of inflation?

Core inflation does not include goods and services, included in the CPI, that experience frequent price shocks.

Which statement is an objection of using the Consumer Price Index (CPI) to measure changes in the cost of living?

The calculated inflation rate is only accurate for an individual who purchases all the goods and services in the basket.

If an economy experiences deflation, then the

overall price level is declining

On Orca Island, people consume fish sandwiches and snow cones. Use the table to calculate the inflation rate from 2013 to 2014 using the Consumer Price Index (CPI). Use 2013 as the base year. P2013 P2014 Fish sandwiches: $4.00 $5.00 (Q 500) (Q 750) P2013 P2014 Snow cones: $1.00 $1.50 (Q 1200) (Q 1250)

Inflation rate: 34.38%

Determine if the people in the exampled benefited (i.e., are winners) or have bee harmed (i.e., are losers) by expected inflation

Winners: - Joy, who borrowed $40,000 today for her college education -The United States federal government, which has almost $15 trillion in debt in 2011 Losers: -Herb, who keeps his saving in an old coffee can -Third National, a bank that loaned many people money for home purchases -Karen, a retired school teacher who relies upon her fixed pension to pay for her expenses.

What is inflation?

an increase in the overall price level