a)
The question requires us to determine the value of the
a)
Answer to Problem 1FRQ
The price index in the year 2010 is 100.
Explanation of Solution
Given,
Year 2010 is the base year.
Price of goods in the year 2010 = $P
Price of goods in the year 2030 = $2P
Price index for year 2010=Price of good in current yearPrice of good in base year×100=$P$P×100=100
The price index for the year 2010 is 100.
The formula for the price index is:
Price index=Price of good in current yearPrice of good in base year×100
b)
The question requires us to determine the value of the price index in 2030.
b)
Answer to Problem 1FRQ
The value of the price index in the year 2030 is 200.
Explanation of Solution
Given,
Year 2010 is the base year.
Price of goods in the year 2010 = $P
Price of goods in the year 2030 = $2P
Price index for year 2030=Price of good in current yearPrice of good in base year×100=$2P$P×100=200
The value of the price index in the year 2030 is 200.
The formula for the price index is:
Price index=Price of good in current yearPrice of good in base year×100
c)
The question requires us to determine the percentage change in nominal income between 2010 and 2030.
c)
Answer to Problem 1FRQ
Nominal income rises by 100 percent from 2010 to 2030.
Explanation of Solution
Given,
Nominal income in the year 2010 = $40,000
Nominal income in the year 2030 = $80,000
Percent increase in nominal income =Nominal income in 2030−Nominal income in 2010Nominal income in 2010×100=80,000−40,00040,000×100=100
Nominal income rises by 100 percent from 2010 to 2030.
d)
The question requires us to determine the real income between 2010 and 2030.
d)
Answer to Problem 1FRQ
Real income remains the same between 2010 and 2030.
Explanation of Solution
Real income remains the same between 2010 and 2030 because the price and nominal income both doubled during the given period.
An increase in price causes the
Real income = Nominal incomeChange in price
Suppose, the price index in 2010 = 100,
Price index in 2030 = 200 (double of 2010 price)
Real income in 2010 = $40,000100=$400Real income in 2030 = $80,000200=$400
So, real income remains the same.
Chapter 15 Solutions
Krugman's Economics For The Ap® Course
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