Unformatted text preview: %change = (7-5)/5=.4 or 40% inflation = (145-100)/100=45% Min Workers are worse off because prices rose more than their income. Now inflate the 2000 minimum wage to 2002 prices. Does this imply the same conclusion? Deflate the 2002 minimum wage to 2000 prices. Does this imply the same conclusion? 2002 prices = ($5)(145/100) = $7.25 => workers were better off in 2000 $7 = 2000 prices (145/100) => 2000 prices = $4.83 => workers were better off in 2000 Suppose you borrow a large sum of money in 2001 to be repaid in 2002 at an interest rate of 10% which, at the time, seems like a lot but you really need the money. What is the real interest rate that you'll have to pay? Inflation was 20.8% so r = i - pi = 10 - 20.8 = -10.8 So the money you pay back is worth 10.8% less than what you borrowed....
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- Spring '08
- Inflation, GP D, GDP CPI Deflator