(a) Government survey takers determine that typical family expenditures each month in the year designated as the base year are as follows: 20 pizzas at $10 each Rent of apartment, $600 per month Gasoline and car maintenance, $100 Phone service (basic service plus 10 long-distance calls), $50 In the year following the base year, the survey takers determine that pizzas have risen to $11 each, apartment rent is $640, gasoline and maintenance have risen to $120, and phone service has dropped in price to $40. (i) Find the CPI in the subsequent year. (ii) Find the rate of inflation between the base year and the subsequent year. (iii) The family's income rose by 5 percent between the base year and the subsequent year. Are they worse off or better off in terms of what their income is able to buy? Explain. (b) True or False: If both the potential lender and the potential borrower correctly anticipate the rate of inflation, inflation will not redistribute wealth from the creditor to the debtor. Explain.
(a) Government survey takers determine that typical family expenditures each month in the year designated as the base year are as follows: 20 pizzas at $10 each Rent of apartment, $600 per month Gasoline and car maintenance, $100 Phone service (basic service plus 10 long-distance calls), $50 In the year following the base year, the survey takers determine that pizzas have risen to $11 each, apartment rent is $640, gasoline and maintenance have risen to $120, and phone service has dropped in price to $40. (i) Find the CPI in the subsequent year. (ii) Find the rate of inflation between the base year and the subsequent year. (iii) The family's income rose by 5 percent between the base year and the subsequent year. Are they worse off or better off in terms of what their income is able to buy? Explain. (b) True or False: If both the potential lender and the potential borrower correctly anticipate the rate of inflation, inflation will not redistribute wealth from the creditor to the debtor. Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:(a) Government survey takers determine that typical family expenditures each month in
the year designated as the base year are as follows:
20 pizzas at $10 each
Rent of apartment, $600 per month
Gasoline and car maintenance, $100
Phone service (basic service plus 10 long-distance calls), $50
In the year following the base year, the survey takers determine that pizzas have risen to
$11 each, apartment rent is $640, gasoline and maintenance have risen to $120, and
phone service has dropped in price to $40.
(i) Find the CPI in the subsequent year.
(ii) Find the rate of inflation between the base year and the subsequent year.
(iii) The family's income rose by 5 percent between the base year and the subsequent
year. Are they worse off or better off in terms of what their income is able to
buy? Explain.
(b) True or False: If both the potential lender and the potential borrower correctly anticipate
the rate of inflation, inflation will not redistribute wealth from the creditor to the debtor.
Explain.
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