Question 1

To obtain real average hourly earnings,nominal average hourly earnings are multiplied by the CPI.

Accepted Answer

To obtain real average hourly earnings, nominal average hourly earnings are divided by the Consumer Price Index (CPI) and then usually multiplied by 100 to convert to an index. This adjusts for inflation and reflects the purchasing power of earnings.

Question 2

Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent,then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation
A)equal to 0 percent.
B)greater than 7 percent.
C)equal to 7 percent.
D)less than 7 percent.

Accepted Answer

The most beneficial rate of inflation for a borrower is one that is higher than the difference between the nominal interest rate (12 percent) and the expected real interest rate (5 percent), which is 7 percent. A higher inflation rate reduces the real value of the money repaid, benefiting the borrower.

Question 3

Table 20-22
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average Hourly } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 11 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-22.Using the above table,calculate real average hourly earnings for 2014,2015,and 2016.Calculate the rate of growth of real average hourly earnings from 2015 to 2016.

Accepted Answer

The answer of Table 20-22
 \[\begin{array} { | c |...

Question 4

The CPI in 2010 was 218,while the CPI in 1980 was 82.If you had $5,000 in 1980,its equivalent purchasing power in 2008 would be $10,850.

Accepted Answer

To find the equivalent purchasing power, adjust for inflation using the CPI values. The formula is: (CPI in 2010 / CPI in 1980) * 1980 amount = equivalent amount in 2010. This gives (218/82) * $5,000 = $13,292.68, not $10,850.

Question 5

The stated interest rate on a loan is the
A)real interest rate.
B)nominal interest rate.
C)actual inflation rate.
D)expected inflation rate.

Accepted Answer

The stated interest rate on a loan is the nominal interest rate, which is the rate at which the loan is actually charged.

Question 6

The nominal interest rate equals the real interest rate ________ the inflation rate.
A)times
B)divided by
C)plus
D)minus

Accepted Answer

The nominal interest rate is the actual interest rate that is reported by banks and lenders, while the real interest rate takes into account the impact of inflation on the purchasing power of the money being lent or borrowed. Therefore, the nominal interest rate equals the real interest rate plus the inflation rate.

Question 7

Table 20-19
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average Hourly } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-19.Looking at the table above,what is the rate of growth of the average price level from 2015 to 2016?
A)1%
B)2%
C)3.5%
D)4.76%
E)5.25%

Accepted Answer

To find the rate of growth of the average price level from 2015 to 2016, we need to calculate the percentage change using the formula (new value - old value)/old value x 100.

The average price level in 2015 was 105.8, and in 2016 it was 110.8.

So the percentage change = (110.8 - 105.8)/105.8 x 100 = 4.76%.

Therefore, the correct answer is D) 4.76%.

Question 8

The real interest rate equals the nominal interest rate ________ the inflation rate.
A)times
B)divided by
C)plus
D)minus

Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. This is because inflation erodes the purchasing power of money, so the real interest rate provides a better indicator of the true increase in purchasing power that can be obtained from an investment.

Question 9

Table 20-23
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal } \
\text { Minimum } \
\text { Wage }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 1974 & \$ 2.00 & 49.3 \
\hline 2012 & 7.25 & 224.9 \
\hline
\end{array}$$
-Refer to Table 20-23.The table above lists the actual minimum wage and CPI in 1974 and in 2012.Using the above table,calculate the real minimum wage for 1974 and 2012.Calculate the rate of growth of the real minimum wage from 1974 to 2012.Are workers better off in terms of the purchasing power of a dollar in 1974 or 2012? Explain why.

Accepted Answer

The answer of Table 20-23
 \[\begin{array} { | c |...

Question 10

Table 20-19
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average Hourly } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-19.Looking at the table above,what is the approximate rate of growth of real average hourly earnings from 2014 to 2015?
A)15%
B)4.4%
C)-1.5%
D)-4.8%

Accepted Answer

The real average hourly earnings are calculated by adjusting nominal earnings for inflation using the CPI. From 2014 to 2015, nominal earnings stayed the same, but the CPI increased, indicating a decrease in real earnings. The approximate rate of growth is calculated as $(10/105) / (10/100) - 1 \approx -4.8\%$.

Question 11

Table 20-17
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average } \
\text { Hourly Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 188.9 \
\hline 2015 & 11 & 195.3 \
\hline 2016 & 13 & 201.6 \
\hline
\end{array}$$
-Between 2015 and 2016,the CPI of a small nation rose from 182 to 185.If household incomes rose by 3% during that period of time,which of the following is true?
A)The purchasing power of household income rose between 2015 and 2016.
B)The purchasing power of household income fell between 2015 and 2016.
C)The purchasing power of household income remained constant between 2015 and 2016.
D)The CPI cannot be used to determine how the purchasing power of household income changes over time.

Accepted Answer

Since the CPI rose from 182 to 185, the overall cost of goods and services increased by approximately 1.6%. However, since household incomes rose by 3%, the purchasing power of household income increased. This means that households were able to purchase more goods and services with their income, indicating an increase in purchasing power. Therefore, option A is correct. Option B is incorrect because household incomes rose by 3%, indicating an increase in purchasing power. Option C is incorrect because household incomes increased, indicating an increase in purchasing power. Option D is incorrect because the CPI can be used to determine changes in purchasing power over time.

Question 12

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%,what was the real interest rate you paid?
A)16 percent
B)12 percent
C)8 percent
D)6 percent

Accepted Answer

The answer of Imagine that you borrow $5,000 for one...

Question 13

Table 20-19
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average Hourly } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 110 \
\hline
\end{array}$$
-Refer to Table 20-19.Looking at the table above,what is the rate of growth of the average price level from 2014 to 2015?
A)1%
B)2%
C)3%
D)4%
E)5%

Accepted Answer

The answer of Table 20-19
 \[\begin{array} { | c |...

Question 14

Nominal income is equal to real income if the CPI is less than 100.

Accepted Answer

Nominal income is the actual amount of money that a person earns, while real income is adjusted for inflation. If the CPI is less than 100, it means that the overall price level is lower than the base year, so the cost of goods and services is lower. This would cause real income to be higher than nominal income because the buying power of money is greater. Therefore, nominal income is not equal to real income if the CPI is less than 100.

Question 15

Table 20-18
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Nominal Average Hourly } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 } = \mathbf { 1 0 0 } )
\end{array} \
\hline 2014 & \$ 10 & 100 \
\hline 2015 & 10 & 105 \
\hline 2016 & 12 & 117 \
\hline
\end{array}$$
-Refer to Table 20-18.Looking at the table above,what is the rate of growth of real average hourly earnings from 2015 to 2016?
A)7.8%
B)6.25%
C)4%
D)-4%

Accepted Answer

The rate of growth of real average hourly earnings from 2015 to 2016 is calculated as follows:Real average hourly earnings in 2015 = Nominal average hourly earnings in 2015 / CPI in 2015 = 10 / 105 = 0.0952Real average hourly earnings in 2016 = Nominal average hourly earnings in 2016 / CPI in 2016 = 12 / 117 = 0.1026Rate of growth of real average hourly earnings from 2015 to 2016 = (Real average hourly earnings in 2016 - Real average hourly earnings in 2015) / Real average hourly earnings in 2015 = (0.1026 - 0.0952) / 0.0952 = 0.078 = 7.8%Therefore, the rate of growth of real average hourly earnings from 2015 to 2016 is 7.8%.

Question 16

Table 20-21
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Year } & \text { Month } & \begin{array} { c } 
\text { Average Retail Price } \
\text { Unleaded Regular } \
\text { Gasoline } \
\text { (cents per gallon) }
\end{array} & \begin{array} { c } 
\text { CPI } \
( \mathbf { 1 9 8 2 - 1 9 8 4 = 1 0 0 ) }
\end{array} \
\hline 1976 & \text { June } & 59.2 & 56.8 \
\hline 1981 & \text { September } & 137.6 & 93.2 \
\hline 1994 & \text { December } & 114.3 & 149.7 \
\hline 2011 & \text { October } & 340.0 & 226.9 \
\hline
\end{array}$$
-Refer to Table 20-21.The table above reports the consumer price index and the average U.S.retail price for unleaded regular gasoline for four different periods since 1976.Note that the gasoline prices are in cents per gallon.
Calculate the real average retail price of unleaded regular gasoline in 1982-1984 dollars.In which period were gasoline prices the highest in real terms? Also,calculate the real average retail price of unleaded regular gasoline in 2011 dollars.

Accepted Answer

The answer of Table 20-21
 \[\begin{array} { | c |...

Question 17

Currently,the base year for the CPI is the average of prices in the years 1982 to 1984.

Accepted Answer

This is correct. The base year for the CPI (Consumer Price Index) in the United States is currently the average of prices in the years 1982 to 1984. This base year is used as a reference point to measure the change in prices of goods and services over time.

Question 18

Table 20-20
 $$\begin{array} { | c | c | c | } 
\hline \text { Year } & \begin{array} { c } 
\text { Median Salary: } \
\text { New York Yankees }
\end{array} & \begin{array} { c } 
\text { CPI (1982-1984= } \
\mathbf { 1 0 0 } )
\end{array} \
\hline 1989 & \$ 500,000 & 124 \
\hline 2015 & 3,300,000 & 238 \
\hline
\end{array}$$ Salaries in major league baseball have soared over the last 30 to 40 years.Some of the salary increase is due to inflation.The table above reports the consumer price index and the median nominal salary of the New York Yankees for 1989 and 2015.
-Refer to Table 20-20.Calculate the real median salary of the New York Yankees in both 1982-1984 dollars and 2015 dollars.Calculate the percentage increase in the median salary of the Yankees from 1989 to 2015 in both nominal terms and in real terms.

Accepted Answer

The answer of Table 20-20
 \[\begin{array} { | c |...

Question 19

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%,what was the real interest rate you paid?
A)17 percent
B)10 percent
C)7 percent
D)3 percent

Accepted Answer

Real interest rate is the nominal interest rate adjusted for inflation. In this case, the nominal interest rate is $100/$1,000 = 0.1 or 10%. However, the inflation rate was 7%, so the real interest rate is 10% - 7% = 3%.

Question 20

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%,what is the real rate of interest?
A)-9.5%
B)-3.5%
C)1.5%
D)3.5%
E)9.5%

Accepted Answer

Real rate of interest = Nominal rate of interest - Inflation rate
= 6.5% - 3.0%
= 3.5%

Quiz 20: Unemployment and Inflation

To obtain real average hourly earnings,nominal average hourly earnings are multiplied by the CPI.

Suppose you borrow $1,000 at an interest rate of 12 percent.If the expected real interest rate is 5 percent,then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation

The CPI in 2010 was 218,while the CPI in 1980 was 82.If you had $5,000 in 1980,its equivalent purchasing power in 2008 would be $10,850.

The stated interest rate on a loan is the

The nominal interest rate equals the real interest rate ________ the inflation rate.

The real interest rate equals the nominal interest rate ________ the inflation rate.

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest.If the inflation rate was 4%,what was the real interest rate you paid?

Nominal income is equal to real income if the CPI is less than 100.

Currently,the base year for the CPI is the average of prices in the years 1982 to 1984.

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest.If the inflation rate was 7%,what was the real interest rate you paid?

If the nominal rate of interest is 6.5% and the inflation rate is 3.0%,what is the real rate of interest?