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.
A) Between 1970-1985, inflation was highly fluctuating with severe ups and downs. For example, between 1970-1975 inflation rose drastically while during 1975-1980 it fell sharply, only to rise again
This made it a very uncertain environment in the economy to make purchases or investment. Businesses shied away from buying raw materials during this time, as they feared prices might fall even further and they go into a loss.
This uncertain environment made firms to not invest in raw material during this time and wait for the economy and inflation to stabilize.
B) The major difference between CPI and GDP deflator is the fact that CPI includes only those goods which are consumed by a consumer in a typical consumer basket, including even foreign goods.
GDP deflator includes prices of all goods and services produced in an economy in a given year, irrespective of them being consumed by the consumers.
It is possible for CPI to increase while at the same time GDP deflator to fall, when the prices of foreign goods consumed by a consumer increase drastically, while the price level of the domestic goods decreased slightly.
This would increase the value of CPI due to increase in price of foreign goods, while GDP deflator would fall.
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. 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.) 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...
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,...
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...
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...
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...
8. The Phillips curve is based on the observed negative relation between the rate of inflation and the unemployment rate. That is, decreases in the unemployment rate tend to be associated with increases in the rate of inflation a) Given what you know about the relation between the unemployment rate and the GDP gap, restate the Phillips curve in terms of inflation and the GDP gap. b) Based on the AD-IE model, and given your answer in (a), explain why...
year average male income average female income year since 1965 wage gap 1965 42.6 25.5 0 17.1 1970 49.5 29.4 5 20.1 1975 51.7 30.4 10 21.3 1980 51.6 31.1 15 20.5 1985 51.5 33.2 20 18.3 1990 49.3 36.3 25 13 1995 49.3 35.2 30 14.1 2000 51.9 38.3 35 13.6 2005 50.9 39.2 40 11.7 2010 52.8 40.6 45 12.2 2015 57.9 41.3 50 16.6 sample mean 50.8181818 34.5909091 25 16.2272727 sample deviation 3.62 5.11 16.58 3.5 Please...