SOC101Y1 Lecture Notes - Tropical Year, Tax Rate
Document Summary
I nflation is the increase over time in the cost of a standard basket of goods & services. Real dollars are nominal dollars minus inflation (so cost in real dollars is the cost of a standard basket of goods & services minus inflation, & income in real dollars is nominal income minus inflation, or purchasing power). Market income is income before taxes & transfers. Year 1: a typical basket of goods & services costs . Year 2: a typical basket of goods & services costs . Therefore, the annual inflation rate = 5%; nominal year 2 dollars = real year. The real value of year 2 is . 24year 1 (since (/) * 100 = . 24). Real value = (dollars today/inflated base dollars today) * dollars today. The inflation rate between year 1 and year 2 is 3%. The inflation rate between year 2 and year 3 is 4%.