eco 111 ch6

The New York Times cost $0.15 in 1970 and $2.00 in 2011. The average wage in manufacturing was $3.36 per hour in 1970 and $23.09 in 2011. By what percentage did the price of a newspaper rise? By what percentage did the wage rise? In order to earn enough to buy a newspaper, a worker had to work minutes in 1970 and minutes in 2011. Workers' purchasing power in terms of newspapers between 1970 and 2011.

1233 587 2.68 5.2 fell

Tennis Balls Golf Balls Bottles of Gatorade 2014 Price $2 $4 $1 Quantity 100 100 200 2015 Price $2 $6 $2 Quantity 100 100 200 Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is % . If you were to learn that a bottle of Gatorade increased in size from 2014 to 2015, that information would your estimation of the inflation rate. If you were to learn that Gatorade introduced new flavors in 2015, that information would your estimation of the inflation rate.

% change tball gball bottle 0 50 100 (new value-old value /old value *100) 50 lower lower

Suppose that a borrower and a lender agree on the nominal interest rate to be paid on a loan. Then inflation turns out to be higher than they both expected. The real interest rate on this loan is than expected. The lender from this unexpectedly high inflation, and the borrower under these circumstances. Inflation during the 1970s was much higher than most people had expected when the decade began. Homeowners who obtained fixed-rate mortgages during the 1960s the unexpected inflation, and the banks that made the mortgage loans were .

lower loses gains benefited from harmed

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the cpi overstates inflation

The residents of Vegopia spend all of their income on cauliflower, broccoli, and carrots. In 2013, they spend a total of $200 for 100 heads of cauliflower, $75 for 50 bunches of broccoli, and $50 for 500 carrots. In 2014, they spend a total of $225 for 75 heads of cauliflower, $120 for 80 bunches of broccoli, and $100 for 500 carrots. Using 2013 as the base year, the CPI for 2013 is , and the CPI for 2014 is. The inflation rate in 2014 is % using the CPI.

2013- 2.00 1.50 0.10 2014- 3.00 1.50 0.20 100 146 (current year price/base year price *100) 46% (cpi 2014-cpi 2013 / cpi 2013 *100)

Karaoke Machines CDs Quantity Price Quantity Price (Dollars) (Dollars) 2014 10 40 30 10 2015 12 60 50 12 Using a method similar to that used to calculate the consumer price index, the percentage change in the overall price level is . (Note: Use 2014 as the base year, and fix the basket at 1 karaoke machine and 3 CDs.) Using a method similar to that used to calculate the GDP deflator, the percentage change of the overall price level is . (Note: Again, use 2014 as the base year.) The inflation rate in 2015 is not the same using the two methods because the holds the basket of goods and services constant, while the allows it to change.

37.14 34.69 cpi gdp deflator

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the consumer price index rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent.

5, 3

If the consumer price index is 200 in year 1980 and 300 today, then $600 in 1980 has the same purchasing power as ________ today.

900

The consumer price index measures approximately the same economic phenomenon as

The GDP deflator

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase

The GDP deflator but not the CPI

The invention of the iPod The introduction of air bags in cars Increased personal computer purchases in response to a decline in their price More scoops of raisins in each package of Raisin Bran Greater use of fuel-efficient cars after gasoline prices increase

goods change bias change bias

The largest component in the basket of goods and services used to compute the CPI is

housing