ECON 1000 Lecture Notes - Lecture 2: Nominal Interest Rate, Real Interest Rate, Root Beer

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9 Feb 2016

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Questions: the market basket used to calculate the cpi in aquilonia is 4 loaves of bread, 6 litres of milk, 2 shirts, and 2 pairs of pants. In 2005 the price of bread was . 00 per loaf, the price of milk was . 50 per litre, the price of a shirt was . 00, and the price of a pair of pants was . 00. In 2006 the price of bread was . 75 per loaf, the price of milk was . 25 per litre, the price of a shirt was . 50, and the price of a pair of pants was . 00. What was the inflation rate, as measured by the cpi, for. 100: if the prices of australian-made shoes imported into canada increase, what happens to the gdp deflator and the cpi? a. b. c. d. The gdp deflator does not change; the cpi decreases.

Related Questions

For any given year, the CPI is the price of the basket of goods and services in the

a. given year divided by the price of the basket in the base year, then multiplied by 100.

b. given year divided by the price of the basket in the previous year, then multiplied by 100.

c. base year divided by the price of the basket in the given year, then multiplied by 100.

d. previous year divided by the price of the basket in the given year, then multiplied by 100.

turquoisesalmon794

You are given the following table of prices:

Item	Price in 2013	Price in 2014
1 Loaf of Bread	$ 1.00	$ 1.50
1 Pound of Chicken	$ 6.25	$ 7.00
1 Gallon of Milk	$ 2.00	$ 3.00
1 Gallon of Gasoline	$ 3.00	$ 2.80
1 year of cable (TV and Internet)	$ 840.00	$ 960.00
1 Pair of Jeans	$ 50.00	$ 60.00
1 year of Rent for Apartment	$ 8,400.00	$ 9,000.00

To represent the purchases of the average consumer throughout the year, the government uses the following market basket:

52 loaves of bread, 30 pounds of chicken, 35 gallons of milk, 416 gallons of gasoline, 1 year of cable, 12 pairs of jeans, 1 year of rent for an apartment.

a.Calculate the cost of the market basket in 2013 and the cost of the market basket in 2014.

b.Using 2013 as the base year, calculate the CPI for 2013 and 2014.

c.Calculate the CPI inflation rate between 2013 and 2014.

d.Now suppose the nominal wage of an individual for 2013 and 2014 is given as follows:

Year	Nominal Wage
2013	$ 56.00
2014	$ 60.00

(i)What is the percentage change in the nominal wage between 2013 and 2014?

(ii)Calculate the real wage for both years in 2013 dollars (i.e. using 2013 as the base year).

(iii)What is the percentage change in the real wage between 2013 and 2014?

(iv)Has the purchasing power of the worker increased or decreased between 2013 and 2014? Explain how you know this (using a previous calculation from above).

redox385

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.

ECON 1000 Lecture Notes - Lecture 2: Nominal Interest Rate, Real Interest Rate, Root Beer

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