1) The average hourly wage in 1975 was $6.50, and $17 in 2002. CPI stood at 42 in 1975 and the CPI base year is 2002. Calculate the rate of inflation between 1975 and 2002. What is the average hourly wage in 2002 in real terms (i.e. in terms of the 1975 average hourly wage)? In terms of living standards, is the worker better off in 1975 or 2002? Justify your answer. 2) Why might banks be reluctant to lend money if a country has a history of inflation rising unexpectedly? Justify your answer(s).

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ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 3.7P

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1) The average hourly wage in 1975 was $6.50, and $17 in 2002. CPI stood at 42 in 1975 and the CPI base year is 2002.

Calculate the rate of inflation between 1975 and 2002.
What is the average hourly wage in 2002 in real terms (i.e. in terms of the 1975 average hourly wage)?
In terms of living standards, is the worker better off in 1975 or 2002? Justify your answer.

2) Why might banks be reluctant to lend money if a country has a history of inflation rising unexpectedly? Justify your answer(s).

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