A positive supply shock creates a 5% GDP gap. What is the new inflation rate? Inflation Rate 4.25% 3.75% 3.25% 2.75% 2.25% 1.75% 1.25% 0.75% 0.25% 60 70 80 90 00 LRAS C SRAS AD 100 110 120 130 140 150 Output Index
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- The index number representing the price level changes from 110 to 115 in one year and then from 115 to 120 the next year. Since the index number increases by five each year, is five inflation rate each year? Is the inflation rate the same each year? Explain your answer.The 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.If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes?
- Do neoclassical economists see a value in tolerating a little more inflation if it brings additional economic output? Explain your answer.What has been a typical range of inflation in the U.S. economy in the last decade or so?Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?
- Given the federal budget deficit in recent years, some economists have argued mat by adjusting Social Security payments for inflation using me CPI, Social Security is warming recipients. What is their argument, and do you agree or disagree with it?How does indexing wage contracts to inflation help workers?Which of the following does NOT accurately describe inflation rates? Question 3Answer a. They can be positive, negative or equal to zero b. They can be derived from Consumer Price Index c. They capture the persistent changes in the general price levels d. They magnify the values of real GDP
- Expected inflation is 3%, and initially the output gap is zero (percent). A(surprise) tariff reduction on imported steel and aluminum- which are used widely in domestic production-results in (unexpected) cost-push inflation of -0.5%. Imports rise, leading to (unexpected) demand-pull inflation of -0.25%. The economy's actual rate of inflation is: A. 2.25% B. 2.50% C. 2.75% D. 3.00% E. 3.75%If an economy always has inflation of 10 percent peryear, which of the following costs of inflation will itNOT suffer?a. shoeleather costs from reduced holdings of moneyb. menu costs from more frequent price adjustmentc. distortions from the taxation of nominal capitalgainsd. arbitrary redistributions between debtors andcreditorsOil prices are on track to reach $100 a barrel this month for the first time in 2023 after surging by almost 30% sinceJune, after Russian and Saudi Arabian production cuts and rising demand from China. With many industries being heavily reliant on energy and transportation, what type of inflation would this leadto in South Africa?A. Demand-pull inflationB. Cost-push inflationC. StagflationD. Hyperinflation