Homework Help Question & Answers

The following graph shows the inflation rate in the US between 1965 and 2015. Between 1970...

The following graph shows the inflation rate in the US between 1965 and 2015.

Inflation 16% rate 14 (percent) 12 10 8 6 4 typ harth 2 0 1965 1975 1985 1995 2005 2015 -4

  1. Between 1970 and 1985, inflation rate fluctuated severely. Firms might be unwilling to buy raw materials to produce at that time. Explain (This is related to the cost of inflation.)
  2. Suppose that CPI in 1985 is 80 and the CPI in 2015 is 188. You earned $60,000 in 1985, and you earned $119,000 in 2015. Do you have a higher real income in 1985 or in 2015? Explain with calculations.
  3. Is it possible that CPI increases but GDP deflator decreases? Explain
Inflation 16% rate 14 (percent) 12 10 8 6 4 typ harth 2 0 1965 1975 1985 1995 2005 2015 -4
0 0
Next > < Previous
ReportAnswer #1

a. Fluctuations in the inflation rate manifests uncertainty as a cost if inflation. This uncertainty makes firms cautious about real value future prices, wages and profits, as it is largely unknown and highly variable due to rapid fluctuations in inflation and therefore firms are unwilling to invest or take any major production decisions so as to avoid potential future losses.

b. Real Income = (Nominal Income/CPI)*100

In 1985, Real Income =( 60,000/80 )*100 = 75,000

In 2015, Real Income = 1,19,000*100/188 = 63,297.87

Clearly, Real income in 1985 is greater than 2015, due to inflation in year 2015.

c. Yes, it is possible that CPI increases and GDP deflator decreases.

CPI assumes a fixed basket of goods while GDP accounts for a changing basket, moreover CPI is only calculated for goods meant for consumption but GDP deflator is calculated for all goods and services in the economy. Therefore, it is very much possible that price of a consumer good 'X' increases which leads to an increase in CPI, however price of other goods in GDP decreases and thus overshadows the increase in price of 'X, thus in effect decreasing the GDP deflator.

You may upvote if the answers helped you :)

Know the answer?
Add Answer of:
The following graph shows the inflation rate in the US between 1965 and 2015. Between 1970...
Your Answer: Your Name: What's your source?
Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • The following graph shows the inflation rate in the US between 1965 and 2015. a. Between...

    The following graph shows the inflation rate in the US between 1965 and 2015. a. Between 1970 and 1985, inflation rate fluctuated severely. Firms might be unwilling to buy raw materials to produce at that time. Explain (This is related to the cost of inflation.) b. Is it possible that CPI increases but GDP deflator decreases? Explain. Inflation 16% rate 14 (percent) 12 10 8 6 4 typ harth 2 0 1965 1975 1985 1995 2005 2015 -4

  • The following graph shows the inflation rate in the US between 1965 and 2015. Inflation 16%...

    The following graph shows the inflation rate in the US between 1965 and 2015. Inflation 16% rate 14 (percent) 12 10 8 6 4 rumah un 2 0 1975 1985 1995 2005 -21965 2015 -4 (a) From 1965 to 1995, does CPI in the US always increase over time? Explain. (b) Suppose 2009 is the base year, and the inflation rate between 2009 and 2010 is -2%. (i) What is the CPI in 2009? (ii) Calculate the CPI in 2010....

  • The following graph shows the inflation rate in the US between 1965 and 2015. (a) From...

    The following graph shows the inflation rate in the US between 1965 and 2015. (a) From 1965 to 1995, does CPI in the US always increase over time? Explain. (b) Suppose 2009 is the base year, and the inflation rate between 2009 and 2010 is -2%. (i) What is the CPI in 2009? (ii) Calculate the CPI in 2010. (iii) Between 2009 and 2010, the nominal interest rate is 3%, calculate the real interest rate. (c) Between 1970 and 1985,...

  • The following graph shows the inflation rate in the US between 1965 and 2015 . From...

    The following graph shows the inflation rate in the US between 1965 and 2015 . From 1965 to 1995, does CPI in the US always increase over time? Explain. Suppose 2009 is the base year, and the inflation rate between 2009 and 2010 is -2%. What is the CPI in 2009? Calculate the CPI in 2010. Between 2009 and 2010, the nominal interest rate is 3%, calculate the real interest rate. Inflation 16% rate 14 (percent) 12 10 8 6...

  • 2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent...

    2 Understanding and Calculating Inflation Real and Nominal Interest Rates in the United States, 1960-2015 Percent 16 14 Nominal Real 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Year Figure 2: Real and nominal interest rates in the US, 1960-2015 1. State the Fisher equation. What do the three variables in Fisher's equation represent? 2. Consider Figure 2. Why do negative real interest rates occur? Are they a problem for the economy? 3. In Figure 2,...

  • Inflation Deflator YEAR CPI Rate GDP | %GDP | Real GDP | %RGDP (%CPI) |(2015-100) 6197...

    Inflation Deflator YEAR CPI Rate GDP | %GDP | Real GDP | %RGDP (%CPI) |(2015-100) 6197 97.11 16785 98.94 17522 100.00 18219 101.09 18707 103.02 19485 2012 231.22 95.43 2013 234.72 2014 236.27 Y7SA 2015 237.83 2016 242.78 2017 247.91 1. Calculate the annual inflation rate using the CPI 2. Calculate the annual GDP growth rate using the GDP 3. Explain how the inflation rate and the GDP growth have been moved 4. Calculate the real GDP using GDP deflator...

  • GDP Inflation Deflator Rate YEAR CPI GDP %GDP | Real GDP | %RGDP (%CPI) |(2015-100) 2012...

    GDP Inflation Deflator Rate YEAR CPI GDP %GDP | Real GDP | %RGDP (%CPI) |(2015-100) 2012 231.2 95.43 1619 2013 234.72 97.11 16785 2014 236.27 98.94 17522 2015 237.83 100.00 18219 2016 242.7 01.09 1870 2017 247.91 103.02 19485 1. Calculate the annual inflation rate using the CPI. 2. Calculate the annual GDP growth rate using the GDP. 3. Explain how the inflation rate and the GDP growth have been moved. 4. Calculate the real GDP using GDP deflator by...

  • #3- #7 GDP Inflation Rate | | GDP | %GDP | Real GDP! %RGDP (%CPI) |(2015-100)...

    #3- #7 GDP Inflation Rate | | GDP | %GDP | Real GDP! %RGDP (%CPI) |(2015-100) Deflator ODP Delator YEAR CPI 2012 231.221 llp 19 7 lo0 95.43 16197 97.1 1| 2014 2327 0.098.94 |1,51%| 16785| 3.63%|10785|1.8yy.11DTOS 17522413 2013 234.72 98.91 100.00| 101.09| 10302| 175214.34%|17622|0. Will03-678M 1821 3.78 % | IDalas67 18707|O.Uby|18707|1.61%|1c.asılS 19485| 나·ル%|ique a-ay|07.4%yt 2015: 23783 0.pWll 242져 2-08 247.91| 2.1%| 201 a310S 2017| 1. Calculate the annual inflation rate using the CPI 2. Calculate the annual GDP growth...

  • Line A 1965 1970 1975 1995 2000 2005 2010 1980 1985 1990 32. Refer to Figure...

    Line A 1965 1970 1975 1995 2000 2005 2010 1980 1985 1990 32. Refer to Figure 33-1. Line A is a. investment spending. b. unemployment rate. c. real GDP. arlgin d. CPI. 33. The value of money falls as the price level a. falls, because the number of dollars needed to buy a representative basket of goods rises. b. rises, because the number of dollars needed to buy a representative basket of goods falls. c. falls, because the number of...

  • Given the following 4 scenarios: The contract interest rate was 3.5% and the expected inflation rate...

    Given the following 4 scenarios: The contract interest rate was 3.5% and the expected inflation rate was 1.5%. The contract interest rate was 5% and the expected inflation rate was 2%. The contract interest rate was 7.5% and the expected inflation rate was 4%. The contract interest rate was 9% and the expected inflation rate was 5%. and an ex post actual inflation rate of 4.75%, answer both of the following questions. a) Indicate which scenario was expected to be...

Free Homework App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.