Chapter 9: Q. 24 (page 243)
Why is the GDP deflator not an accurate measure of inflation as it impacts a household?
The GDP deflator is not an accurate measure of inflation as it impacts a household is because it includes the production of goods and services rather than consumption or purchase of goods and services.
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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.
A fixed-rate mortgage has the same interest rate over the life of the loan, whether the mortgage is for 15 or 30 years. By contrast, an adjustable-rate mortgage changes with market interest rates over the life of the mortgage. If inflation falls unexpectedly by 3%, what would likely happen to a homeowner with an adjustable-rate mortgage?
If, over time, wages and salaries on the average rise at least as fast as inflation, why do people worry about how inflation affects incomes?
Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at Measuring Worth.com. How much money would it take today to purchase what one dollar would have bought in the year of your birth?
Construct the price index for a “fruit basket” in each year using 2003 as the base year.
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