Macro Topic 2.4 Price Indices and Inflation 15. Assume that economists expect the inflation rate to be 5% so you negotiate a 5% increase in your nominal wage. If the actual inflation rate is 3%, will your real wage increase, decrease, or stay the same? Explain. 16. Assume that economists expect the inflation rate to be 2% but the actual inflation rate turns out to be 5%. If 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. Part 4: Putting It All Together- Use the United States CPI data in the table to answer the questions. Consumer Price Index 1984-2016 Year CPI Year CPI Year CPI Yar 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 2007 207 2014 237 1987 1994 148 2001 177 2008 215 2015 237 1988 1 18 1995 152 2002 180 2009 214 2016 240 1989 124 1996 157 2003 184 2010 218 2017 245 1990 131 1907 160 2004 189 2011 225 2018 251 17. According to this chart, which vear saw prices nearly double compared to the base year? Explain how you got your answer. 18. According to this chart, which year had the lowest inflation rate? Explain how you got your answer. 19. Calculate the inflation rate between the yeats 1997 and 2002. Show your work. 20. Which has more purchasing power, $400 in 1984 $800 in 2018? Explain your reasoning. 21. If your salary was $30,000 in 1997 and $50,000 in 2017, would you have more purchasing power in 1897 or in 2017? Explain your reasoning? Part 5: Stretch Your Thinking- Answer the question. 22. The CPI tends to estimate higher rates of inflation than other measures. Use the idea of substitution bias to explain why this occurs. Video Help: https://hit.ly/2VN9mRw Copyright Jacob Clifford 2020. www.ACDCecon.com Annual license required. Do not use unless you have purchased a license