Question 1

Suppose in 2009 the United States Congress passes a minimum wage law that increases the minimum wage (the lowest legal wage) to $7.25 per hour and has a provision that increases the minimum wage at the beginning of each year based on the CPI for the previous year.
a. If the CPI increases 3 percent for each of the next four years (so that the inflation rate is 3 percent for each of the next four years), find the minimum wage for 2010, 2011, and 2012.
b. If the CPI overstates inflation by 1 percentage point, calculate a revised minimum wage for each year 2010 to 2012 removing the CPI bias.
c. How much does the CPI bias affect the minimum wage in 2010, 2011, and 2012?

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Question 2

What is the difference between nominal variables and real variables?
 Discuss the calculations undertaken to determine the real wage rate and the real interest rate.Explain why the real wage rate and real interest rate are real variables.

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Question 3

What, if any, is the impact of the CPI bias on government spending and taxes?

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Question 4

$$\begin{array} { c c } 
\text { Year } & \text { CPI } \
\hline 2008 & 100.0 \
2009 & 102.5 \
2010 & 106.0 \
2011 & 111.0
\end{array}$$
-Scott worked in a large foreign country.He retired in 2008 and his pension income is fixed at $1,500 per month.The table above gives the CPI in this country.What is the real monthly value of his pension in the years between 2008 and 2011?

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\text {...

Question 5

Define the nominal wage rate and the real wage rate.Can the nominal wage rate increase faster than the real wage rate?

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Question 6

For each of the following values of nominal GDP and real GDP, calculate the GDP price index.
a. Nominal GDP = $600; real GDP = $800.
b. Nominal GDP = $900; real GDP = $900.
c. Nominal GDP = $1,200; real GDP = $1,000.

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Question 7

Is the CPI a biased measure of the inflation rate?
 Explain your answer.

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Question 8

$$\begin{array} { l c c } 
 { \text { GDP } } & \begin{array} { c } 
\text { Data for 2008 } \
\text { (billions of dollars) }
\end{array} & \begin{array} { c } 
\text { Data for 2009 } \
\text { (billions of dollars) }
\end{array} \
\hline \text { Nominal GDP } & 3,300 & 4,200 \
\text { Real GDP } & 3,300 & 3,600 \
\hline
\end{array}$$
-The table above shows real and nominal GDP for two years.
a. What does the GDP price index equal in 2008?
 What does the value of the GDP price index tell you about 2008?
b. What does the GDP price index equal in 2009?

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...

Question 9

Explain how the nominal wage rate is converted into the real wage rate.Explain why this process of conversion changes the nominal wage rate into the real wage rate.

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Question 10

In 1979, the price of gasoline was $1.389 per gallon and the CPI was 72.6.In 2003, the price of gasoline was $1.589 per gallon and the CPI was 182.9.Find the real price of gasoline in 1979 and 2003 in terms of base period dollars.

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Question 11

"The bias in the CPI distorts private contracts because a future payment that is linked to the CPI will be raised above the true increase in the price level." Is the previous sentence true or false?

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Question 12

What is the commodity substitution bias?
 What effect does it have on the CPI?

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 What...

Question 13

Explain the difference between a nominal value and a real value.

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Question 14

"The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not?
 Explain your answer.

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Question 15

Suppose the base reference period is 1982-1984.If your nominal wage rate is $8.00 per hour when the CPI is 180, what is your real wage rate in 1982-1984 dollars?

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Question 16

Explain the CPI bias and how it can distort private contracts and increase government outlays.

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Question 17

Define the nominal interest rate and the real interest rate.Discuss the relationship between the nominal interest rate and the real interest rate.

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Question 18

When the nominal price of a good increases over time, must its real price also increase?

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Question 19

In 1995, the CPI was 152.5 and the price of an economics textbook was $70.00 and a music CD was $16.00.If the CPI was 172.3 in 2009, what were the prices of the economics textbook and the music CD in 2009 dollars?

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Question 20

If nominal GDP is $230 for a period and real GDP is $200 for the same period, what is the GDP price index for this period?

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Quiz 7: The Cpi and the Cost of Living

What is the difference between nominal variables and real variables? Discuss the calculations undertaken to determine the real wage rate and the real interest rate.Explain why the real wage rate and real interest rate are real variables.