EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Question
Chapter 22, Problem 6CQQ
To determine
Inflation and costs.
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Does the BLS method of assessing inflation imply that consumers actually purchase the same goods and services year after year?
Explain how the average inflation rates are calculated?
Suppose there are 1200 units of money on an island, but money grows by 5.32% per year. Islanders spend each unit of money 2.3 times per year on average and this spending grows by 1.98%. The price level is at 34. GDP is expected to grow at 4.83%. What is the level of inflation? Answer this as a percentage without the percentage sign and round this to two digits after the decimal. ex. If you found the rate to be 5.125%, answer 5.13.
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- How does indexing wage contracts to inflation help workers?arrow_forwardThe total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.arrow_forwardSuppose the economy’s nominal GDP constantly grows at 9%, and real GDP constantly grows at 4%What is the inflation rate? How long does it take for an item that costs $1 today to cost $4?arrow_forward
- Suppose you took out 20,000 in student loans at a fixed interest rate of 5%. Assume that after you graduate, inflation rises significantly as you are paying back your loans. Does this rise in inflation benefit you in paying back your student loans? Who is hurt more from unexpected higher inflation, a borrower or a lender ?arrow_forwardSuppose Julie's salary went from $45,000 to 13. $175,000 in 12 years. a. Assuming she got the same percentage raise each of those twelve years, show how to calculate that rate (r%). b. Assuming that inflation was about 3% per year for those twelve years, by what percent did Julie's "purchasing power" increase? Explain what you think "purchasing power" means.arrow_forwardWhich of the following is the positive impact of inflation? A) Inflation causes the real value of saving for a saving person to eroded. B) Inflation makes debtors pay less in real return. C) Fixed-income people have the same income but a high cost of living. D) lender will not have the option to earn interest.arrow_forward
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