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1. Assuming that we have a base year of 1982, what does it mean when we have a CPI of 132.7 for 2017 versus an
1. Assuming that we have a base year of 1982, what does it mean when we have a CPI of 132.7 for 2017 versus an inflation rate of 2.2% in 2017? How would you explain these figures to a friend who hasn't taken an economics class before? 2. Complete the chart below and then answer the following questions based on the chart. (all prices have been made up) Item Quantity Price in Market Price in Market Price in Market Price in Market 1982 Basket 2008 Basket 2009 Basket 2010 Basket (base Cost Cost in Cost in Cost in year 2008 2009 2010 Gasoline 250 1.22 1.75 2.00 2.25 Jeans 5 15 15 25 40 Pizza 18 6 10 10 8 Rent 12 600 700 750 775 What would be the CPI for 1982? What would be the CPI for 2008? What would be the CPI for 2009?What would be the CPI for 2010? Calculate the inflation rate for 2009. Calculate the inflation rate for 2010. 3. Based on the video within your readings, why have countries like Zimbabwe experienced hyperinflation? What happens to purchasing power when an economy experiences hyperinflation? 4. Assume that this year your nominal income is $65,000 and the CPI is 120, if you receive a pay raise and are now making $70,000 with a CPI of 135 are you better off, worse off, or the same in terms of purchasing power? Compute the real incomes for both and explain. 5. If there is a nominal interest rate of 8% and inflation is 4%, what is the real interest rate?6. If there is a nominal interest rate of 6% and inflation is 8%, what is the real interest rate? 7. Explain a time when you could see the substitution bias in your life
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