EC290 Lecture Notes - Lecture 7: Gdp Deflator, Real Interest Rate, Nominal Interest Rate
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Three goods are consumed in an economy during years 1 and 2. The table shows prices (P1 and P2) for each good, and it shows the market basket that is used to calculate the consumer price index. The base year is year 1.
Good |
P1 |
P2 |
Basket |
Milk (gallons) |
$4 |
$4.20 |
4 |
Chicken (pounds) |
$5 |
$5.50 |
10 |
Onions (bags) |
$2 |
$2.32 |
1 |
Enter numbers in each blank, rounded to two decimal places as necessary. The cost of the basket in year 1 is $____ and the cost of the basket in year 2 is $_____. The value of the CPI in year 1 is _____ and the value of the CPI in year 2 is ______. The inflation rate is equal to ______%.
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?