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