Lesson 2.04 - real GDP rises etc 3 The government would be...

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Lesson 2.04 1. Rise in inflation decreases the value of the currency. For example, I borrow $20,000 from the bank for two years. But, inflation rises 10% and I lose $2,000 dollars worth of purchasing power, reducing the value to $18,000. I save $2,000 since the value of the dollar has fallen. The bank loses $2000 since the value of the loan has dropped. 2. I wouldn't want to take the three year fixed rate because if inflation rises, I will have to cover my costs (cost push). But I can't charge more on my client since I signed a fixed rate. I would add the client if inflation is projected to go down, value of the dollar go up,
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Unformatted text preview: real GDP rises, etc. 3. The government would be helped by inflation. If the government owes 500 dollars but inflation went up, the debt would be worth less. 4. Nickie's salary rose by 16.66%, but inflation rose 25%. So Nickie is hurt by inflation because she has less purchasing power. 5. First, I found total of both market baskets, 83 and 98. Then I found the price index for 2007 and 2008, 100 and 118. Found the inflation rate, which is 18%. Then I checked the percent increase with the market basket increase. The answer is 18%....
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