Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781285453545
Author: Russell Sobel; Richard Stroup; James Gwartney; David Macpherson
Publisher: South-Western College Pub
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Chapter 10, Problem 6CQ
To determine
Identify the reason for an increase in the
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Suppose that people expect inflation to equal 5 percent, but in fact, prices rise by 7 percent.
Which of the following groups or individuals are hurt by this unexpectedly high inflation rate? Check all that apply.
The government
A union worker in the second year of a labor contract
A homeowner with a fixed-rate mortgage
A college that has invested some of its endowment in government bonds that are not indexed Treasury bonds
The graph depicts a hypothetical economy's short-run Philips
curve (SRPC). Please shift the SRPC to reflect what happens
when expected inflation decreases by 2 percentage points.
After the shift in SRPC, what is the unemployment rate if the
public expects no inflation in the economy?
%
Inflation rate (%)
-1
-2
0
7
6
SRPC
5
4
3
2
-3
0
1
2
3
4
5
6
7
8
0
10
explain how inflation could be a factor for the unemployment rate
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Macroeconomics: Private and Public Choice
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- If inflation rises unexpectedly by 5, indicate for each of the following whether the economic actor is helped, hurt, or unaffected: A union member with a COLA wage contract Someone with a large stash of cash in a safe deposit box A bank lending money at a fixed rate of interest A person who is not due to receive a pay raise for another 11 monthsarrow_forwardMacmillan Learning After graduating from college in 2010, Art Major's starting salary is $35757.00. Suppose Art Major has a cost of living adjustment (COLA) clause, or an escalator clause, in his labor contract so that he will be able to maintain this same level of purchasing power in real terms in 2011 and 2012. Using the information in the table, how much will Art Major earn in 2011 and 2012 if his salary keeps up with inflation? Round your answers to the nearest dollar. CPI 102.77 105.69 107.06 What is Art Major's salary in 2011? $ Year 2010 2011 2012 36784.62 Incorrect What is Art Major's salary in 2012? 37278.51arrow_forwardDescribe five economic effects of a continuous, moderate inflation.arrow_forward
- Bob loans his sister-in-law $1000 so she can make her rent. She must pay it back after one year. If Bob charges her 6 percent interest and wants to get a real return (real interest) of 3.5 percent, Bob must anticipate that inflation will be___________ percent over the next year. (Carefully follow all numeric instructions. Enter your answer "as a percent, but without the percentage sign." In other words, if you think Bob predicts 99.99 percent inflation, just enter 99.99 in the blank.)arrow_forwardIn the short-run you know that firms and households expect inflation of 3.6% next year. There are no supply shocks and cyclical unemployment is 1.09%. Lambda is 0.5. With this information, what is the inflation rate today? Write your answer as a percentage, round at one (1) decimal, and do not write the percentage sign. Use a minus sign if needed.arrow_forwardConsider the nature of unemployment and inflation and predict whether or not they should have some sort of relation with each other. Explain why you expect that relation to hold true.arrow_forward
- After graduating from college in 2010, Art Major's starting salary is $45757.00. Suppose Art Major has a cost of living adjustment (COLA) clause, or an escalator clause, in his labor contract so that he will be able to maintain this same level of purchasing power in real terms in 2011 and 2012. Using the information in the table, how much will Art Major earn in 2011 and 2012 if his salary keeps up with inflation? Round your answers to the nearest dollar. Year CPI 2010 101.77 2011 105.69 2012 108.04 What is Art Major's salary in 2011? $ What is Art Major's salary in 2012?arrow_forwardPlease explain the methodology behind the Consumer Price Index (CPI) calculation and assess the effectiveness of the index as a gauge of inflation.arrow_forwardWhich of the following groups would most likely be harmed by inflation? Group of answer choices spenders workers retirees none of the above Older people often reminisce about the “good old days” when prices were much lower. This is misplaced nostalgia primarily because in the “good old days” Group of answer choices prices were not really that low wages were much lower also When interest rates fall, investment expenditures by businesses Group of answer choices decrease increasearrow_forward
- calculate the percentage of inflation rate: -If the price level rises from 100 to 102 over a year ..................................................... - If it rises to 103 the next year, thenThe inflation rate for that year is............................arrow_forwardIf my nominal wages go up 5% this year and inflation is 2% this year, what happened? a) All of the choices are correct. b) I experience an increase in my both my nominal income and in my real income. c) My nominal wages increased more than the increase in the overall price level. d) My real wages increased by approximately 3%arrow_forwardWhich type of inflation is usually most pronounced during the expansionary phase of the business cyclearrow_forward
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