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1. Answer each of the following questions. For consistency with the online answers, carry out all intermediate steps
involving decimals to at least the fourth decimal, and then round any final percentage answers to the nearest 10" of a
percent. For example, 0.0619 would become 6.19% which, when rounded to the nearest tenth of a percent would be
6.2%.)
a. If the price level was 1.2 in Dec. 2012, and 1.4 in Dec. 2013, what was the rate of inflation for the year 2013?
b. If the price level was 1.4 in Dec. 2012, and the rate of inflation was 15% over the year 2013, what would the
price level be in Dec. 2013?
c. [Read carefully] If the price level was 1.3 in Dec. 2013, and the rate of inflation was 12% over the year 2013,
what was the price level in Dec. 2012?
d. If the average nominal wage rises from $10 to $12 over some time period, and price level rises from 1.0 to 1.1
over the period, what is the exact (not approximate) percentage change in the real wage over the period? [Hint:
Do not use the approximation rule, because this question asks for the exact percentage change.]
e. If the average nominal wage rises from $10 to $12 over some time period, and price level rises from 1.0 to 1.1
over the period, what is the approximate percentage change in the real wage over the period? [Hint: use the
approximation rule for percentage changes in real variables presented in class-"rule #3."]
f. If the average real wage rises from $10 to $10.50 over some period, and the price level rises from 1.0 to 1.1,
what is the approximate percentage change in the average nominal wage? [Hint: Notice the word "approximate."
So, you'll be using a version of the approximation rule here.]
g. Suppose that, over a time period lasting 3 years, the nominal wage rises by 5% per year. Over the same time
period, the annual rate of inflation is 3%. What is the exact total percentage increase in the real wage over
this entire time period? [Hint: This question asks for the exact percentage change. So... which rule or rules should
you use?]

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