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

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- Spring '08
- FERNANDEZ
- Macroeconomics, Inflation, Unemployment