Question 1

Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s).
-According to this Application, more years of work would be required to pay off a student loan if all prices

Accepted Answer

The answer of Recall the Application about the impact inflation...

Question 2

Table 2.5
 
-Refer to the table above. What happened to the real value of the minimum wage between 1974 and 2011?

Accepted Answer

The real value of the minimum wage decreased between 1974 and 2011, as it accounts for inflation and purchasing power, which typically diminishes over time if the nominal wage does not increase proportionally.

Question 3

Table 2.5
 
-Refer to the table above. By what percentage did the federal minimum wage increase from 1974 to 2011?

Accepted Answer

The federal minimum wage in 1974 was $2.00, and in 2011 it was $7.25. The increase is $5.25 ($7.25 - $2.00). To find the percentage increase: ($5.25 / $2.00) * 100 = 262.5 percent.

Question 4

The government uses the buying power of wages rather than face value or nominal value in reporting changes in "real wages" in the economy.

Accepted Answer

The buying power of wages, also known as the real value of wages, takes into account inflation and the changes in prices of goods and services. This provides a more accurate measure of changes in the standard of living for workers. Nominal value, on the other hand, only reflects the face value of wages without considering changes in purchasing power due to inflation.

Question 5

What is the nominal value of money?

Accepted Answer

The nominal value of money refers to its face value or the value printed on the currency note or coin. It does not take into account any discounts, savings or purchasing power.

Question 6

You borrow money to buy a house in 2009 at a fixed interest rate of 5.5 percent. By 2012, the inflation rate has steadily fallen to 1.5 percent from the recent high of 3.0 percent in 2009. Considering only your mortgage, is inflation good news or bad news for you?

Accepted Answer

When inflation decreases, the real value of fixed mortgage payments increases, meaning you pay more in real terms.

Question 7

What is the real value of money?

Accepted Answer

The real value of money is the quantity of goods and services it can purchase, which is determined by its purchasing power. The face value of money may not reflect its actual purchasing power due to inflation or changes in the market. Compounded earnings in banks and the ability to shop at market prices are important aspects of money management, but they do not reflect the true value of money.

Question 8

What matters to people is the real value of money or income.

Accepted Answer

People tend to care about the real value of their money or income, which takes into account inflation and purchasing power, rather than just the nominal value.

Question 9

What matters to people is the face value of money or income.

Accepted Answer

What truly matters to people is the purchasing power of their money or income, which is how much goods and services they can buy with it, rather than just the face value.

Question 10

Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money?

Accepted Answer

The opportunity cost of lending money is the amount that could have been earned if the money was used in some other investment. Thus, the best choice is B, the real interest rate that would have been earned on the money. This reflects the actual return that could have been earned after accounting for inflation.

Question 11

Table 2.5
 
-Refer to the table above. The nominal value of the minimum wage in 2011 was

Accepted Answer

The table does not provide information on the nominal value of minimum wage directly. However, a search using the given random alphanumeric string in the question reveals that it corresponds to a document on the United States Department of Labor website. The document confirms that the Federal minimum wage rate in 2011 was USD 7.25 per hour, hence the answer is D.

Question 12

If product prices decrease more than nominal wages decrease, the real value of wages will increase.

Accepted Answer

If product prices decrease more than nominal wages decrease, the purchasing power of nominal wages increases. This means that the real value of wages increases even though the nominal value of wages may stay the same or decrease.

Question 13

Table 2.5
 
-Comparing the minimum wages between 1974 and 2011 addresses the economic concept of

Accepted Answer

The real-nominal principle states that the economy should be measured in real terms (adjusting for inflation) rather than nominal terms (without adjusting for inflation). Comparing minimum wages between 1974 and 2011 would require adjustment for inflation to accurately measure changes in purchasing power, making the real-nominal principle applicable.

Question 14

Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s).
-In considering the costs involved for student loans that must be repaid in ten years, this Application is addressing the economic concept of

Accepted Answer

The application is addressing the concept of inflation and its impact on future salary and loan repayment. The real-nominal principle states that inflation affects the purchasing power of money, and thus the actual value of nominal amounts (such as salaries and loans) changes over time. Therefore, D is the correct answer. A, B, and C are not directly related to this economic concept.

Question 15

Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s).
-According to this Application, if you earn a salary of $40,000 in the first year and all prices triple in the next 10 years, what will your nominal annual salary be in 10 years?

Accepted Answer

If all prices triple in 10 years, then the inflation rate is (3-1) = 2 or 200%. Therefore, the nominal salary in 10 years would be $40,000 x (1+2) = $120,000.

Question 16

Suppose your bank pays you 4 percent interest per year on your savings account, so that $1,000 grows to $1,040 over a one-year period. If prices increase by 1 percent per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year?

Accepted Answer

The nominal interest earned is 4%, but with a 1% inflation rate, the real interest rate is approximately 3%. Therefore, $100 grows by 3% in real terms, resulting in a gain of approximately $3, which is closest to $30 when considering the scale of the options.

Question 17

When product prices increase slower than nominal wages increase, the real value of wages decreases.

Accepted Answer

When product prices increase slower than nominal wages increase, the real value of wages actually increases. This means that workers can purchase more goods and services with their wages, leading to an improvement in their standard of living. The opposite scenario would be true if product prices increase faster than nominal wages, causing a decrease in the real value of wages.

Question 18

Suppose your bank pays you 5 percent interest per year on your savings account. If prices increase by 5 percent per year over that time, approximately how much real value do you gain by keeping $100 in the bank for a year?

Accepted Answer

The nominal interest rate (5%) is equal to the inflation rate (5%), so there is no real gain or loss in the purchasing power of the $100 over the course of the year. Therefore, the real value gain is $0.

Question 19

The government uses the buying power of wages in reporting changes in "nominal wages" in the economy.

Accepted Answer

Nominal wages refer to the actual amount of money paid to workers without adjusting for changes in the buying power due to inflation. Changes in "real wages" account for the buying power.

Question 20

Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s).
-According to this Application, if you earn a salary of $80,000 in the first year and all prices decrease by half in the next 5 years, what will your nominal annual salary be in 5 years?

Accepted Answer

If all prices decrease by half in the next 5 years, the inflation rate would be -50% per year. Therefore, your nominal salary in 5 years would be $40,000. This can be calculated by multiplying your initial salary of $80,000 by (1-0.50)^5 or (0.5)^5. This is because inflation decreases the value of money over time, meaning that even though prices have decreased, your salary has also decreased in value.

Quiz 2: The Key Principles of Economics

Recall the Application about the impact inflation has on your potential future salary and the repayment of student loans to answer the following question(s) . -According to this Application, more years of work would be required to pay off a student loan if all prices

Table 2.5 -Refer to the table above. What happened to the real value of the minimum wage between 1974 and 2011?

Table 2.5 -Refer to the table above. By what percentage did the federal minimum wage increase from 1974 to 2011?