1. The level of prices and the value of money Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. In year one, the basket costs $10.00. In year two, the price of the same basket is $9.00. From year one to year two, there is at an annual rate of In year one, $50.00 will buy baskets, and in year two, $50.00 will buy baskets. This example illustrates that, as the price level falls, the value of money
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- Suppose Cho is a cinephile and buys only movie tickets. Cho deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $15.00. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Cho'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. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Cho will not buy seven-tenths of a movie ticket. Fill in the annual inflation chart Choices…The first two columns of the table below describe the goods and quantities included in your current monthly consumption. Suppose you have been able to use all of your monthly income (no savings) to afford this level of fixed consumption over the last few years despite the increase in the cost of living. • Round all expenditure calculations to the nearest dollar. • Round CPI and inflation (expressed as an integer) to 1 decimal place. • Carry your rounded figures throughout the rest of the problem. 2018 2019 2020 Basket Prices Prices Item Prices Quantities Meal Kit Delivery $106.00 8 $107.00 $110.25 $48.25 $50.00 $46.00 $53.00 Water 16 Hydro Electricity 14 $56.90 $58.75 Dry cleaning $62.00 10 $64.75 $68.00 Entertainment $26.00 17 $28.75 $32.80 Part (a): Using the quantities specified in the 2018 basket of goods, calculate the CPI for 2018, 2019 and 2020. Part (b): What is the inflation rate between 2018 and 2019? 2019 and 2020? Part (c): Suppose inflation is expected to remain constant…Suppose Rosa is a cinephile and buys only movie tickets. Rosa deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $10.00. Initially, the purchasing power of Rosa's $3,000 deposit is movie tickets. For each of the annual Inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Rosa'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. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie tickets under the assumption that Rosa will not buy…
- 5. Interest, inflation, and purchasing power Suppose Diamond is a fan of young-adult fiction and buys only young-adult books. 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 young-adult book has a price of $20.00. Initially, Diamond's $2,000 deposit has a purchasing power of young-adult books. For each of the annual inflation rates given in the following table, first determine the new price of a young-adult book, 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. Hint: Round your answers in the first row down to the nearest young-adult book. For example, if you find that the deposit will cover 20.7…1. The level of prices and the value of money Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one latte, one scone, and one bus trip. In year one, the basket costs $15.00. In year two, the price of the same basket is $14.00. From year one to year two, there is In year one, $120.00 will buy baskets, and in year two, $120.00 will buy This example illustrates that, as the price level falls, the value of money baskets. at an annual rate ofThe following table lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Month April May June Price of Gas (Dollars per gallon) 2.00 60.1% Refer to Table 25-3. What is the inflation rate for May? 67.2% -4.1% 10% 3.50 3.85 Price of Milk (Dollars per gallon) 3.50 3.52 3.58
- Suppose, in the base year, a typical market basket purchased by an urban family costs $250. In Year 1, the same market basket cost $950. What is the consumer price index (CPI) for Year 1? If the same market basket costs $1,000 in Year 2, what is the CPI for Year 2? What was the Year 2 rate of inflation?Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one cup of coffee, one donut, and one newspaper. In year one, the basket costs $6.00. In year two, the price of the same basket is $7.00. From year one to year two, there is at an annual rate of . In year one, $12.00 will buy baskets, and in year two, $12.00 will buy baskets. This example illustrates that, as the price level rises, the value of money .The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following year Base Year (Year 1) Quantity 10 Price in the Base Year Price in Product Year 2 Pizza $3 13 $2.50 $15.00 $500.00 T-Shirts 2 $13.50 Rent 1 $550 00 In Year 1, the CPI for the economy is (Round both answers to one decimal place.) In Year 2, the CPI for this economy is
- 1. The level of prices and the value of money Suppose the price level reflects the number of dollars needed to buy a basket of goods containing one can of seltzer, one bag of pretzels, and one shuttle ride. In year one, the basket costs $11.00. In year two, the price of the same basket is $10.00. From year one to year two, there is deflation at an annual rate of 1.00% In year one, $55.00 will buy baskets, and in year two, $55.00 will buy This example illustrates that, as the price level falls, the value of money baskets.The monthly market basket for consumers consists of pizza, t-shirts, and rent. The table below shows market basket quantities and prices for the base year (Year 1) and in the following two years. Product Pizza T-Shirts Rent Base Year (Year 1) Quantity 10 3 1 The inflation rate between Year 1 and Year 2 is The inflation rate between Year 2 and Year 3 is Price in the Base Year $3.50 $10.00 $500.00 Price in Year 2 $4.38 $9.00 $550.00 Price in Year 3 $4.73 $10.50 $600.00 %. (Round both answers to one decimal place.) %.Suppose Damaris is a sports fan and buys only football tickets. Damaris 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 football ticket has a price of $10.00. Initially, Damaris's $2,000 deposit has a purchasing power of football tickets. For each of the annual inflation rates given in the following table, first determine the new price of a football ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Damaris'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. Hint: Round your answers in the first row down to the nearest football ticket. For example, if you find that the deposit cover 20.7 football tickets, you would round the purchasing power down to 20 football…