AP Macro TOPIC &. Price Indices and Inflation Assume that the next year's nominal wage rate will be 5% higher than this year's because of nflationary expectations. The actual inflation rate is 3%. At the beginning of next year, will an individual's real wage be higher, lower, or the same as today? Explain. Real wages will be higher because the percentage increase in wages was higher than the inflation Rate." Be 290 higher. 1/a daddys be 236 in 2019 but in actuality it turns out to be 5%. Assume that people expect the inflation rate to be 2% banks gave out a large number of fixed rate loans at a 6% interest rate, who is better off because of the unexpected inflation, the lenders or borrowers? Explain your reasoning. 1 4: Putting It All Together- Use the United States CPI data in the table to answer the questions. Consumer Price Index 1984-2018 Year CPI Year CPI Year CPI Year CPI Year CPI 1984 104 1991 136 1998 163 2005 195 2012 230 1985 108 1992 140 1999 167 2006 202 2013 233 1986 110 1993 145 2000 172 2007 207 2014 237 1987 114 1994 148 2001 177 2005 215 2015 237 1988 118 1995 152 2002 180 2009 214 2016 240 1989 124 1996 157 2003 184 2010 218 2017 245 1990 131 1997 160 2004 189 2011 225 2018 251 B. According to this chart, which year saw prices double compared to the base year? Explain how you got your answer. 4. According to this chart, which year had the lowest inflation rate? Explain how you got your answer. . Calculate the inflation rate between the years 1997 and 2002. Show your work. 5. Which has more purchasing power, $400 in 1984 or $800 in 20187 Explain your reasoning. 7. If your salary was $30,000 in 1997 and $50,000 in 2017, would you have more purchasing power in 1997 or in 2017? Explain your reasoning? Part 5: Stretch Your Thinking- Answer the questions. 18. The CPI tends to estimate higher rates of inflation than other measures. Use the idea of substitution bias to explain why this occurs