# HW_1 Answers - ECON 3910 Microeconomics Homework 1 Chapter...

This preview shows pages 1–2. Sign up to view the full content.

ECON 3910 – Microeconomics Homework 1: Chapter 1 1.Suppose the Social Security Administration would like to guarantee the purchasing power of social security payments to the elderly does not diminish. That is, the real value of the payments does not decrease. The CPI in 1990 was 130.7 and the CPI in 1998 was 163.0. How much does the Social Security Administration need to increase payments from 1990 to 1998 to accomplish this objective? Solution: Let P denote the nominal payments in 1990 and P + x the nominal payments in 1998, where x is such that the real value of payments in 1998 remains the same as in 1990. This requires that (100/130.7)*P = (100/163)*(P+x). Solving it for x one has x = (163/130.7-1)*P = 0.25*P. Thus, the level of payments in 1998 needs to be (1+ 0.25)P. 2.The nominal price of a 1990 laptop was \$3,500 and the CPI that year was 130.7. The nominal price of a laptop in 1998 was \$1,600 and the CPI that year was 163.0. By what percent has the real price of laptops changed? Solution: The real price of a laptop in 1990 is (100/130.7)*3500=2677.89 whereas the real price of a laptop in 1998 is (100/163)*1600=981.60. Hence, the percent change in the real

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern