3. 2019 2020 Price Quantity Price Quantity $2.50 $6.00 $3.00 $6.60 Nuts 40 tons 38 tons Berries 50 tons 52 tons a. Calculate the Consumer Price Index (CPI) for 2020 and the inflation rate for 2020. b. If the nominal wage was $22.5 for both 2019 and 2020 – what is the real wage in 2020? c. If the real rate of interest is 2% and expected inflation is 4% over the next year, what nominal interest rate will the banker charge on a one-year loan? If at the end of year, the actual rate of inflation is 13%, what will be the real rate of interest the banker realizes on the loan described? Why is this outcome harmful to an economy? d. Briefly, what is the substitution bias and how does it affect the CPI?

3. 2019 2020 Price Quantity Price Quantity $2.50 $6.00 $3.00 $6.60 Nuts 40 tons 38 tons Berries 50 tons 52 tons a. Calculate the Consumer Price Index (CPI) for 2020 and the inflation rate for 2020. b. If the nominal wage was $22.5 for both 2019 and 2020 – what is the real wage in 2020? c. If the real rate of interest is 2% and expected inflation is 4% over the next year, what nominal interest rate will the banker charge on a one-year loan? If at the end of year, the actual rate of inflation is 13%, what will be the real rate of interest the banker realizes on the loan described? Why is this outcome harmful to an economy? d. Briefly, what is the substitution bias and how does it affect the CPI?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

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Similar questions

Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate man using the GDP deflate:
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the CPI.
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