Inflation

1.Which groups of people are helped by inflation?

2.Which groups of people are hurt by inflation?

3.What are the causes of the 2 types of inflation?

4.Define real income.

5.A bank loans George $10,000 at an 8% nominal interest rate that he will pay back in a year.The bank anticipates 3% inflation over the next year.What is the real interest rate?

Answer the following questions about the tables provided below.

Year 1

GoodQ (yr. 1; in 1000s)P (yr. 1)Q (yr 2)P (year 2)

Pineapples6$14$1.50

Bananas40$.2060$.15

Mangos20$.3020$.50

6.Calculate the nominal GDP in year 1.

7.Calculate the nominal GDP in year 2.

8.Calculate the real GDP in year 2.

GoodQ (yr 1) P (yr 1)Q (yr 2)P(yr 2)

Computer chips2$304$35

Chocolate chips30$140$1.50

Potato chips20$220$2

A.What is the nominal GDP in year 1?

B.What is the nominal GDP in year 2?

C.What is the real GDP in year 2?

D.Use the GDP deflator to calculate the inflation rate in year 2.

29. Calculate the inflation rate in year 2 for the following examples using year 1 as the base year.

Price index, yr 2: 115Price index, yr 2: 220Price index, yr 2: 50

Price index, yr 1: 100Price index, yr 1: 200Price index, yr 1: 40