Question

1) Table 9-19

Year	Nominal Average Hourly Earnings	CPI (1982-1984 =100)
2011	$10	100
2012	10	105
2013	12	110

Refer to Table 9-19. Looking at the table above, what is the rate of growth of the average price level from 2011 to 2012?

Group of answer choices

3%

5%

4%

1%

2%

Table 9-9

Year	CPI (1982-1984 =100)
2012	100
2013	113

2 ) Refer to Table 9-9. Suppose that the data in the table above reflect the price levels in the economy. Given that data, we can say that the cost of living rose by ________ between 2012 and 2013?

Group of answer choices

11%

5%

8%

13%

2%

3)

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2013. You know that average prices have risen steadily since 1961. You earn

Group of answer choices

less than 5 times as much as your grandfather in terms of real income.

less than 5 times as much as your grandfather in terms of nominal income.

more than 5 times as much as your grandfather in terms of real income.

5 times as much as your grandfather in terms of real income.

Answer 1

1.The percentage change in the Consumer Price Index (CPI) is the inflation rate.

From 2011 to 2012, the CPI increases from 100 to 105. So, the inflation rate is 5%.

2. Since the percentage change in CPI shows the rate of inflation, the CPI increases from 100 in 2012 to 113 in 2013. So, the inflation rate is 13%. Therefore, the cost of living rose rose by 13% from 2012 to 2013.

3. It is given that the income of grandfather was $7,000/year and the income of individual today is $35,000/year. So, the individual is earning 5 times the income of grandfather in nominal terms. Since there is an increase in average price level from 1961, the real income is less than 5 times the income of the grandfather as the real income takes into account the changes in price level. Therefore, the correct answer is 'Option A'.