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- Figure: Aggregate Demand) Point B on this aggregate demand curve represents an inflation rate of: O A. 3% O B. 4% O C. 5%. O D. 7%2) a. If actual inflation is more than expected inflation, which of the following groups will most certainly benefit? a. Lenders b. Borrowers c. Minorities d. Women e. Men b. Suppose that the consumer price index of a country was 160 at year-end 2004 and 168 at the end of 2005. What was the country’s inflation rate during 2005? a.5 percent b.8 percent c.60 percent d.68 percent c. If the consumer price index (CPI) at the end of year one was 100 and was 108 at the end of year two, the inflation rate during year two was a.zero; the CPI of 100 indicates that prices were stable. b.8 percent. c.5 percent. d.108 percent.Assume that next year’s wage rate will be 3 percent higher than this year’s because of inflationary expectations. The actual inflation rate is 4 percent. At the beginning of next year, will the real wage be higher, lower, or the same as today? Explain. Assume that Mark gets a fixed-rate loan from a bank when the expected inflation rate is 3 percent. If the actual inflation rate turns out to be 4 percent, who benefits from the unexpected inflation: Mark, the bank, neither, or both? Explain. How does each of the following changes affect the real gross domestic product and price level of an open economy in the short run? Explain. The depreciation of the country’s currency in the foreign exchange market.
- 32. Suppose a person receives a 5% increase in pay when inflation is 4%. In this case, the nominal increase is__________ , the real increase is ____________, If the employee overestimates the real gain, this would be an example of___________. O. 9%, 4%, price confusion O. 5%, 1%, sticky wages O. 5%, 1%, employee misperceptions O. None of the other choices listed is correct. O. 5%, 4%, shoe leather costs 33. It is known that the method used by the BLS to calculate the U3 unemployment rate biases the results, All of the biases tend to cause the reported U3 statistic to be lower than what it really is. O. True O. FalseUse Table 8P - 5 to calculate core and headline inflation in each time frame relative to the base year, assuming that each category is weighted equally in the calcula tion of headline inflation . [LO 8.2 , 8.4 a. 2012 to a base year . b . 2016 to a base year . . 2012 to 2016.Suppose that the Phillips curve is given byπ t = π te − α ( u t − u n ) ,where the estimated value of the natural rate of unemployment, un = 4.5% and α = 0.4. The expectations are myopic (i.e. fully backward), thus πte = πt−1.a) What is the sacrifice ratio in this economy? Explain in words.Suppose that at time t = 0 unemployment is initially equal to the natural rate (i.e. u0 = 4.5%) and π0 = 7.5%. The central bank decides that 7.5% inflation is too high and that starting in year 1 it will decrease inflation to 3.5%.
- Let’s see just how much high expected inflation can hurt incentives to save for the long run. Let’s assume the government takes about one‑third of every extra dollar of nominal interest you earn. You must pay taxes on nominal interest. However, if you are rational, you will care mostly about your real, after‑tax interest rate when deciding how much to save. ?i ??=?Eπ=π 23×?23×i (23×?)−?(23×i)−π Nominal interest rate Inflation (no surprises) Nominal after‑tax return Real after‑tax return 15% 12% 10% -2% 6% 3% 12% 9% 90% 87% 900% 897% Calculate the nominal and real after‑tax return for each case.Nominal interest rate = 6%, inflation = 3% Nominal after‑tax return: % Real after‑tax return: % Nominal interest rate = 12%, inflation = 9% Nominal after‑tax return: % Real after‑tax return: % Nominal interest rate = 90%, inflation = 87% Nominal after‑tax return: %…7. Suppose that people expect inflation to equal 3%, but in fact, prices rise by 5%. Describe how this unexpectedly high inflation rate would help or hurt the following: A.) the governmentB.) a homeowner with a fixed-rate mortgageC.) a union worker in the second year of a labor contractD.) a college that has invested some of its endowment in government bondsSuppose that the nominal interst rate is 7 percent and the real interest rate is 5 percent. Instructions: round your answers to the nearest whole number. What is the inflation premium? (in percentage) Given the level of inflation, how many years would it take for the price level to double?
