All of the above Indicate whether the following statement is true or false and

# All of the above indicate whether the following

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All of the above***** Indicate whether the following statement is true or false and why: "A wage rising slower than the rate of inflation is actually falling." True. If wages are increasing slower than the average price of goods and services, purchasing power falls. Suppose the fixed interest rate on a loan is 5.75% and the rate of inflation is expected to be 4.25%. The real interest rate is 1.5%: Suppose now that instead of 4.25%, the inflation rate unexpectedly reaches 5.5%. Who gains and who loses from this unanticipated inflation? (Mark all that apply.) Lenders lose from a lower real interest rate. Borrowers gain from a lower real interest rate. Nominal Average Hourly Earnngs Year Earnings CPI 2008 \$16.00 202 2009 \$17.00 207 2010 \$18.00 209 What is the real average hourly wage in 2009? \$8.21 (17 divided by 207 multiplied by 100) What can be said about real average hourly earnings and nominal average hourly earnings between 2008 and 2010? Both real and nominal average hourly earnings increased. Base year 2014 2016 Expenditures Expenditures Expenditures 70 140 105 280 400 360 120 120 140 470 660 605 The CPI in 2014 equals 140.43 (660 divided by 470 multiplied by 100) The CPI in 2016 equals 128.72 (605 divided by 470 multiplied by 100) a better measure of the true cost of borrowing and the true return from lending than does the nominal interest rate Real interest rate #### You've reached the end of your free preview.

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• Spring '08
• FERNANDEZ
• • •  