Chapter 9: Q 13. (page 243)
What is the difference between the price level and
the rate of inflation?
There are various differences between thees two.
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If inflation rises unexpectedly by , indicate for each of the following whether the economic actor is helped, hurt, or unaffected:
a. A union member with a COLA wage contract
b. Someone with a large stash of cash in a safe deposit box.
c. A bank lending money at a fixed rate of interest.
d. A person who is not due to receive a pay raise for another months.
The total price of purchasing a basket of goods in the United Kingdom over four years is year , year , year , and year . Calculate two price indices, one using year as the base year (set equal to ) and the other using year as the base year (set equal to ). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the CPI to convert from nominal to real would be more appropriate than using the GDP deflator.
How to Measure Changes in the Cost of Living introduced a number of different price indices. Which price index would be best to use to adjust your paycheck for inflation?
Who in an economy is the big winner from inflation?
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