QUESTION 6 Suppose that prices and wages both double next year. What is true abo
ID: 1162227 • Letter: Q
Question
QUESTION 6
Suppose that prices and wages both double next year. What is true about next year compared to this year?
a.
Nominal wages are higher and real wages remained constant.
b.
Nominal wages and real wages are both higher.
c.
Nominal wages are higher and real wages are lower.
d.
Nominal wages increased and real wages decreased.
QUESTION 4
In an imaginary economy the typical consumer’s basket consists of 2 table-lamps and 15 hamburgers. The price and quantities are given in the table below:
Year
Price of Table Lamp
Price of Hamburger
2012
$40
$3
2013
$45
$4
2014
$50
$3
Refer to: If 2013 is the base year then the CPI was
a.
83.33 in 2012, 100.00 in 2013, and 96.67 in 2014.
b.
85.56 in 2012, 100.00 in 2013, and 102.22 in 2014.
c.
85.56 in 2012, 100.00 in 2013, and 96.67 in 2014.
d.
92.22 in 2012, 99.00 in 2013, and 95.22 in 2014.
QUESTION 5
The table below shows the prices of basketball and baseball for couple of years. Assume the typical consumer’s basket consists of 6 basketballs and 2 baseballs.
Year
Basketball
Baseball
2013
$3.50
$3.25
2014
$4.00
$3.75
2015
$5.50
$4.10
Assuming 2013 as the base year, the inflation rate was
a.
27.5 percent in 2014 and 31.5 percent in 2015.
b.
14.54 percent in 2014 and 30.80 percent in 2015.
c.
31.5 Percent in 2014 and 41.2 percent in 2015.
d.
114.54 percent in 2014 and 149.82 percent in 2015.
a.
Nominal wages are higher and real wages remained constant.
b.
Nominal wages and real wages are both higher.
c.
Nominal wages are higher and real wages are lower.
d.
Nominal wages increased and real wages decreased.
Explanation / Answer
6.
If prices and wages are both doubled then nominal wages would be higher but real wage would be constant next year.
the correct option is (a)
7.
firstly compute prices for each year from the table
the year 2012 is 125
the year 2013 is 150
the year 2014 is 145
taking 2013 as a base year then CPI for 2013 is 100
for 2012 CPI is (125/150)* 100 = 83.33
for 2014 CPI is (145/150)*100 = 96.67
the correct option is (a)
8. firstly computing the price for each year will be as follows;
for the year 2013, it is 27.5
for the year 2014, it is 31.5
for the year 2015, it is 41.2
the formula for CPI is the difference between CPI for the current year and base year which is then divided by CPI of the base year.
CPI for 2013 = 100
CPI for 2014= 14.54
CPI for 2015 = 30.80
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