ECON 3 Lecture Notes - Lecture 5: Nominal Interest Rate, Real Wages, Market Basket

51 views3 pages

coralserval492

19 Feb 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Is a measure of the general price level. Calculates the cost of a market basket of goods relative to some base year. Is used to calculate inflation (using the % change in the index) To adjust a historical amount for inflation, we want to convert it to current dollars. To do this, we multiply it by cpi now / cpi then. 760. 5 x (238 / 215) = . 9 m. Nominal in year 1 x (cpi in year 2 / cpi in year 1) = real in year 2. The following table shows the average hourly wage in manufacturing and the cpi in 2 years. The real wage in 2014 was equal to the real wage in 1970. What was the nominal hourly wage in 1970? x * (238/38. 8) = 19. 6 x = ~. 20. Prices rose 110% over this 27 year period.

Related Questions

The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

Year	Consumer Price Index	Inflation Rate
2005	100
2006	115	B
2007	125	C
2008	140	D
2009	A	10%
2010	160	E

8.7%

120

25%

12%

The price index was 170 in the first year, 180 in the second year, and 195 in the third year. The inflation rate was about

5.9 percent between the first and second years, and 8.3 percent between the second and third years.

5.6 percent between the first and second years, and 7.7 percent between the second and third years.

10 percent between the first and second years, and 15 percent between the second and third years.

80 percent between the first and second years, and 95 percent between the second and third years.

0.1 points

QUESTION 17

The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced

		5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years.
		7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years.
		5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years.
		7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years

0.1 points

QUESTION 18

Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?

The real interest rate is the nominal interest rate minus the rate of inflation.

The real interest rate is the nominal interest rate times the rate of inflation.

The real interest rate is the nominal interest rate plus the rate of inflation.

The real interest rate is the nominal interest rate divided by the rate of inflation.

0.1 points

QUESTION 19

If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is

4 percent.

-4 percent.

3 percent.

8 percent.

0.1 points

QUESTION 20

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is

9.5 percent.

4.5 percent.

-4.5 percent.

-9.5 percent.

. From 2009 to 2010, the CPI for education increased from 279.3 to 281.8. What was the inflation rate for education between 2009 and 2010?

0.9%

9.0%

2.5%

90%

If the consumer price index changes from 125 in September to 150 in October, what is the rate of inflation?

20.0%

45.5%

16.7%

9.1%

. Suppose a basket of goods and services has been selected to calculate the CPI and 2014 has been selected as the base year. In 2013, the basketâs cost was $80; in 2014, the basketâs cost was $86; and in 2015, the basketâs cost was $90. The value of the CPI in 2015 was

104.6 and the inflation rate was 4.6%.

112.5 and the inflation rate was 4.6%.

112.5 and the inflation rate was 12.5%.

104.6 and the inflation rate was 12.5%.

Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basketâs cost was $80; in 2008, the basketâs cost was $92; and in 2010, the basketâs cost was $108. The base year must be

The base year cannot be determined from the given information.

2002

2008

one of the years between 2008 and 2010.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basketâs cost was $80.00; in 2013, the basketâs cost was $84; and in 2014, the basketâs cost was $87.60. The value of the CPI was

All of the above are correct.

109.5 in 2014.

105 in 2013.

100 in 2012.

Which of the following is correct?

The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.

The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.

The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.

The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

The inflation rate is defined as the

percentage change in the price level from the previous period.

price level in an economy.

change in the price level from one period to the next.

price level minus the price level from the previous period.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

some prices are rising faster than others.

the economy's overall price level is high, but not necessarily rising.

the economy's overall output of goods and services is rising faster than the economy's overall price level.

Base Year (2006) 2013
Product	Quantity	Price	Price
Cokes	100	$0.50	$0.75
Hamburgers	200	2.00	2.50
CDs	10	20.00	21.00

1) Refer to the table above. Assume the market basket for the consumer price index has three products: Cokes, hamburgers, and CDs.

The consumer price index for 2013 equals ______.

Product	Quantity	Base Year Price (2001)	Price (2012)	Price (2013)
Burritos	10	$1.00	$1.50	$1.75
Flashlights	15	5.00	7.00	6.75
Golf balls	8	2.00	3.00	3.50

2) Refer to the table above. Consider a simple economy that produces only three products: burritos, flashlights, and golf balls. Use the information in the table to calculate the inflation rate for 2013 (vs. 2012), as measured by the consumer price index.

Year	Nominal Average Hourly Earnings	CPI
2011	$10	100
2012	10	105
2013	12	110

3) Refer to the table above. Real average hourly earnings were equal to ________ in 2012.

4) Looking at the table above, real average hourly earnings between 2012 and 2013 changed by ______%.

5) Matt's real wage in 2014 is $26.80. If the price level is 104, what is Matt's nominal wage?

lavenderdinosaur371

2. Determine which scenerios best fits these terms: shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions. (Some scenerios may not go in to any of the categories because 2 categories are missing)

a. john thins his new salary in NYC will increase his standard of living.(shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

b. a jewelre observes the price of gold rise and wonders if there is a shortage of gold.(shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

c. Kallie is taking more trips to the ATM now than in the past.(shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

d. your grandmothers savings account pays 2% interest, but inflation is 5%.(shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

e. the CEO of GM worries that his revenue revieved in the future wontn cover the expenses he incurs today. (shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

f. Carson is angry because the price of donuts increased from $1 to $2 since last week.(shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

g. Jim is reluctant to sell his stocks at the end of the year. (shoe leather costs, money illusion, menu costs, future price level uncertainty, wealth redistribution, price confusion, and tax distortions)

8. In 2015, the consumer price index (CPI) was 238,000 whereas it was about 100 in 1982. Suppose that one of your parents had a job that paid $28000 in 1982 and a job that paid $60,000 annually in 2015. Relative to 1982, we could say that your parents nominal income (increased, decreased or stayed the same) in 2015 and that your parents real income (increased, decreased or stayed the same).

ECON 3 Lecture Notes - Lecture 5: Nominal Interest Rate, Real Wages, Market Basket

Document Summary

Get access

Related Documents

ECON 3 Lecture Notes - Lecture 3: Market Basket, Disinflation

ECON 2010 Lecture Notes - Lecture 6: Deflate, Tax Bracket, Nominal Interest Rate

ECON-002 Lecture Notes - Lecture 14: Supplemental Security Income

Related Questions