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Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 37P: Rosalie the Retiree knows that when she retires in 16 years, her company will give her a one-time...

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Use the table below to answer questions:

Year Consumer Price Index

1 80

2 (base year) 100

3 110

4 140

5 155

What is the inflation rate between year 2 and year 3?

What is the inflation rate between year 4 and year 5?

What is real value of a dollar in Year 4?

If the nominal GDP is $9,000 billion in year 3, what is the real GDP?

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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.
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.

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Use the table below to answer questions: Year Consumer Price Index 1 80 2 (base year) 100 3 110 4 140 5 155 What is the inflation rate between year 2 and year 3? What is the inflation rate between year 4 and year 5? What is real value of a dollar in Year 4?