7. (Exam 2 2019) Since the consumer price index (CPI) maintains the basket of goods constan through time and uses the prices from each year, the inflation rate based in this index tends t understate the true increase in the cost of living for consumers Comment and explain your answe

7. (Exam 2 2019) Since the consumer price index (CPI) maintains the basket of goods constan through time and uses the prices from each year, the inflation rate based in this index tends t understate the true increase in the cost of living for consumers Comment and explain your answe

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter6: Tracking The U.s. Economy

Section: Chapter Questions

Problem 4.8P

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5. Interest, inflation, and purchasing power Suppose Rina is an avid reader and buys only mystery novels. Rina 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 mystery novel is priced at $10.00. Initially, the purchasing power of Rina's $3,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Rina'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 mystery novel. For example, if you find that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery…
5. Interest, inflation, and purchasing power Suppose Damaris is a sports fan and buys only football tickets. Damaris deposits $4,000 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 $20.00. Initially, Damaris's $4,000 deposit has a purchasing power of 200 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 will cover 20.7 football tickets,…
1. On an island off the coast of Peru, consumers buy only avocados and mangoes. This year, the CPI implied an annual inflation rate of 29.55%. A government study found that the average household consumes 5 avocados. If the price of avocados was $4 last year, $5 this year, and the price of mangos was $6 last year and $8 this year, how many mangoes are in the consumption basket? a. 10 b. 2 C. 5 d. 4
7. Interest, inflation, and purchasing power Suppose Susan is an avid reader and buys only comic books. Susan deposits $1,000 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 comic book is priced at $10.00. Initially, the purchasing power of Susan's $1,000 deposit is 100 comic books. For each of the annual inflation rates given in the following table, first determine the new price of a comic book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Susan'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 comic book. For example, if you find that the deposit will cover 20.7 comic books, you would round the purchasing power down to 20 comic books under…
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5. Interest, inflation, and purchasing power Suppose Latasha is a cinephile and buys only movie tickets. Latasha 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. Initially, the purchasing power of Latasha'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 Latasha'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…
5. Interest, inflation, and purchasing power Suppose Rosa is an avid reader and buys only mystery novels. Rosa deposits $1,000 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 mystery novel is priced at $10.00. Initially, the purchasing power of Rosa's $1,000 deposit is mystery novels. For each of the annual inflation rates given in the following table, first determine the new price of a mystery novel, 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 mystery novel. For example, if you find that the deposit will cover 20.7 mystery novels, you would round the purchasing power down to 20 mystery…