Question
5 . Problems and Applications Q5 Consider the effects of inflation in an economy composed of only two people: Raphael, a bean farmer, and Susan,
5 . Problems and Applications Q5
Consider the effects of inflation in an economy composed of only two people: Raphael, a bean farmer, and Susan, a rice farmer. Raphael and Susan both always consume equal amounts of rice and beans. In 2019 the price of beans was $1, and the price of rice was $4.
Suppose that in 2020 the price of beans was $2 and the price of rice was $8.
Inflation was
.
Indicate whether Raphael and Susan were better off, worse off, or unaffected by the changes in prices.
| Better Off | Worse Off | Unaffected | ||
|---|---|---|---|---|
| Raphael | ||||
| Susan |
Now suppose that in 2020 the price of beans was $2 and the price of rice was $4.80.
In this case, inflation was
.
Indicate whether Raphael and Susan were better off, worse off, or unaffected by the changes in prices.
| Better Off | Worse Off | Unaffected | ||
|---|---|---|---|---|
| Raphael | ||||
| Susan |
Now suppose that in 2020, the price of beans was $2 and the price of rice was $1.60.
In this case, inflation was
.
Indicate whether Raphael and Susan were better off, worse off, or unaffected by the changes in prices.
| Better Off | Worse Off | Unaffected | ||
|---|---|---|---|---|
| Raphael | ||||
| Susan |
What matters more to Raphael and Susan?
The relative price of rice and beans
The overall inflation rate
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Macroeconomics Policy And Practice
Authors: Frederic Mishkin
2nd Edition
0133424316, 978-0133424317
