Chapter 13, Assignment 5
A
Diring a period of deflation, which of the following statements is true? A) Real average hourly earnings are likely to increase faster than nominal average hourly earnings during a period of deflation. B) As prices of goods and services decrease during s period of deflation, nominal earnings are likely to rise quickly. C) Real earnings will not fall as much as nominal earnings, and will rise if the decline in prices is less than the decline in nominal earnings. D) All of the above.
A
If the CPI was 207 in 2009 and 225 in 2013, what wage would someone who earned a $50,000 income in 2009 have to earn in 2013 in order to keep her purchasing power constant? A) $54,348 B) $54,000 C) $51,252 D) None of the above.
531,529
In 1924, the famous novelist F. Fitzgerald wrote an article for the Saturday Evening Post titled "How to live on $36,000 a Year," in which he wondered how he and his wife had managed to spend all of that very high income without saving any of it. In 1924, the consumer price index (CPI) was 17, and the CPI was 251. The income you would have needed in 2018 to have had the same purchasing power that Fitzgerald's $36,000 had in 1924 is $________________.
50,000
In an article in the Wall Street Journal, a professor of financial planning noted the effect of rising prices on purchasing power: "Today, $2,000 a month seems reasonable [as an income for a retired person in addition to the person's Social Security payments], but 40 years from now that's going to be three cups of coffee and a donut." Suppose that in 2018, three cups of coffee and a donut can be purchased for $10. The CPI in 2018 was 251. If the prices of coffee and donuts increase at the same rate as the CPI over these 40 years, then for $2,000 to be able to purchase three cups of coffee and a donut in 2058, the CPI would have to be _______________.
3,334; more than
Price indexes can be used to compare prices across different periods. Suppose that a year of tuition for college at public institutions averaged a cost of $1,905 in 1989 and that the CPI index was 124 in 1989. If the CPI index was 217 in 2009, as the result of inflation, would equal $____________. Suppose that the actual average cost of tuition in 2009 was $7,115. Relative to the expected cost computed above, the cost of tuition increased by _______________ the amount of inflation.
C
The difference between a nominal variable and a real variable is that A) real variables are calculated in current-year prices and the nominal variables are measured in dollars of the base year to adjust for the effects of inflation. B) nominal variables are economic variables that are adjusted for inflation, whereas real variables are valued in today's dollars. C) nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation. D) real variables are divided by the price index and multiplied by 100 to obtain nominal variables.
C
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104? A) $16,447 B) $34,000 C) $70,288 D) $73,100
