The rate of inflation over the last two years has averaged 2% per year. At the same time,John feels like he is able to purchase fewer goods and services with his annual salary.Therefore:O John must not have received any pay raisesBoth John's nominal and real salaries must have declinedJohn's nominal salary must have declinedJohn's real salary must have declined«PreviousNextASUS

Inflation measures the rate at which the average price level of a basket of selected goods and…

The rate of inflation over the last two years has averaged 2% per year. Ati John feels like he is able to purchase fewer goods and services with his ann Therefore: John must not have received any pay raises Both John's nominal and real salaries must have declined O John's nominal salary must have declined O John's real salary must have declined

The rate of inflation over the last two years has averaged 2% per year. Ati John feels like he is able to purchase fewer goods and services with his ann Therefore: John must not have received any pay raises Both John's nominal and real salaries must have declined O John's nominal salary must have declined O John's real salary must have declined

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 3.7P

See similar textbooks

Similar questions

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.
Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time payment of 20,000. However, if the inflation rate is 6 per year, how much buying power will that 20,000 have when measured in todays dollars? Hint: Start by calculating the rise in the price level over the 16 years.
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.
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:
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?
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.
Construct the price index for a fruit basket in each year using 2003 as the base year.
Compute the inflation rate for fruit prices from 2001 to 2004.