1.

Inflation makes some people worse off and others better off. Price effects, Income effects, and Wealth effects all redistribute economic outcomes, adding an element of luck to our world. Explain how this works.

2.

Consider last year a price index base year with a CPI of 100. If a general basket of goods last year was $20,000, and the same basket is $24,000 this year. Compute the price index for this year.

3.

Bankers make loans in the Nominal Interest Rate, so why do bankers care so much about the Real Interest Rate?