MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 7, Problem 8SQ
To determine
The meaning of deflation.
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An economy produces two goods, x, and y. A year ago the price of x was $4 and the price of y was $6. Today the price of x is $8 and the price of y is $10. What happened to the nominal and the real value of good x? What happened to the nominal and real value of good y?
Inflation represents the rate of increase of the average price of goods. If inflation decreases from 10% to 5%, does the average price of goods decrease? Explain.
Identify each of the following as nominal or real variables.a. the physical output of goods and servicesb. the overall price levelc. the dollar price of applesd. the price of apples relative to the price of orangese. the unemployment ratef. the amount that shows up on your paycheck after taxesg. the amount of goods you can purchase with the wage you get each hourh. the taxes that you pay the government
Chapter 7 Solutions
MACROECONOMICS FOR TODAY
Ch. 7.2 - Prob. 1GECh. 7.2 - Prob. 2GECh. 7.2 - Prob. 1YTECh. 7.2 - Prob. 2YTECh. 7 - Prob. 1SQPCh. 7 - Prob. 2SQPCh. 7 - Prob. 3SQPCh. 7 - Prob. 4SQPCh. 7 - Prob. 5SQPCh. 7 - Prob. 6SQP
Ch. 7 - Prob. 7SQPCh. 7 - Prob. 8SQPCh. 7 - Prob. 9SQPCh. 7 - Prob. 10SQPCh. 7 - Prob. 11SQPCh. 7 - Prob. 1SQCh. 7 - Prob. 2SQCh. 7 - Prob. 3SQCh. 7 - Prob. 4SQCh. 7 - Prob. 5SQCh. 7 - Prob. 6SQCh. 7 - Prob. 7SQCh. 7 - Prob. 8SQCh. 7 - Prob. 9SQCh. 7 - Prob. 10SQCh. 7 - Prob. 11SQCh. 7 - Prob. 12SQCh. 7 - Prob. 13SQCh. 7 - Prob. 14SQCh. 7 - Prob. 15SQCh. 7 - Prob. 16SQCh. 7 - Prob. 17SQCh. 7 - Prob. 18SQCh. 7 - Prob. 19SQCh. 7 - Prob. 20SQ
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- The Consumer Price Index is subject to the substitution bias and me quality/new goods bias. Are the Producer Price index and the GDP deflator also subject to these biases? Why or why not?arrow_forwardAverage inflation went up by 65.5% since the turn of the century while college tuition and fees soared by 175%. Why has the relative price of college increased so much compared to average inflation?arrow_forwardT/F Real GDP does not affect with the level of price.arrow_forward
- The consumer price index is subject to the substitution bias and the quality/new good bias. Are the producer price index and the GDP deflator also subject to these biases? Why or why not?arrow_forwardThe table below pertains to Studious, an economy in which the typical consumer’s basket consists of 5 books and 10 calculators. Year Price of Books Price pf Calculator 2010 $24 $8 2011 $30 $12 2012 $32 $15 - Referring to the above table compute the followings: A- The cost of the basket. B- The consumer price index. C- The inflation rate in 2012.arrow_forwardA rise in the price level means a: a) deflation b) higher value of money c) lower value of money d) lower value of goodsarrow_forward
- Why there are sudden inflation in agricultural commodities like onions or shallots?arrow_forwardDraw a graph where inflation falls and GDP increases.arrow_forwardCalculate the Inflation rate using the information given: Consumer spend $2000 on food, $2000 on clothing, $1000 on health and 5000 on entertainment. The price of food rises by 5%, the price of clothing falls by 10%, the price of health services rises by 30% the price of entertainment rises by 20%. In 2004, the Chinese government became concerned about the country’s inflation rate. The price level was being driven up mainly by rising raw material and energy prices. Ministries in the Chinese government were anxious to reduce inflation rate, as they were worried about its possible effects on the country exports and savings. A) Was China suffering mainly from cost-push inflation or demand pull inflation in 2004? B) Why may inflation have a harmful effect on the country’s exports and imports? C) Explain one other cost imposed by inflation on an economy.arrow_forward
- Because consumers can sometimes substitutecheaper goods for those that have risen in price,a. the CPI overstates inflation.b. the CPI understates inflation.c. the GDP deflator overstates inflation.d. the GDP deflator understates inflation.arrow_forwardFinally, type the following problem and then show all work in answering the problem's questions: 1. Given an economy consists of five goods: clothing, shelter, transportation, food, and entertainment. Their prices for the year 2020 were$200,$1,000,$500,$800, and$400, respectively and the quantities purchased for the five goods were10,12,3,12, and 1 , respectively. If 2020 is the base year, what were the inflation or deflation rates for 2021 and 2022 if in 2021 the prices for the five goods were$300,$900,$600,$900, and$300, respectively and in 2022 thelprices for the five goods were$400,$1000,$400,$1000, and$200, respectively.arrow_forwardIf my nominal wages go up 5% this year and inflation is 2% this year, what happened? a) All of the choices are correct. b) I experience an increase in my both my nominal income and in my real income. c) My nominal wages increased more than the increase in the overall price level. d) My real wages increased by approximately 3%arrow_forward
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