Suppose that in a given country, the price level over several years looks like this. Price Index...

Question:

Suppose that in a given country, the price level over several years looks like this.

{eq}\begin{array} {|c|c|} \hline &\text{Price Index} \\ \hline 2011 & 220 \\ \hline 2012 & 220 \\ \hline 2013 & 254 \\ \hline 2014 & 264 \\ \hline \end{array} {/eq}

(a) What were the inflation rates in 2011-2012, and in 2012-2013 (the first two years in the table)? (Your answer should be two percentages.)

(b) Suppose that nominal GDP in the country grew at 7% between 2012 and 2013. What was the change in real GDP?

(c) Suppose you had a salary of $50,000 in 2011. What would the equivalent of that be in 2014? In other words, how much would you have to earn in 2014 for your real income to be the same as it was in 2011?

Measuring Inflation Rate:

Inflation is general increase in price level of all goods and services in the economy for a period of time. Inflation is measured by indices like Consumer Price Index (CPI) and Producer Price Index (PPI).

Answer and Explanation:

(a).

Inflation can be calculated as the difference between CPI indices in the years;

Inflation between 2011-2012:

{eq}220-220= 0\% {/eq}

Inflatio...

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What Is Inflation Rate? - Definition & Formula

from College Macroeconomics: Homework Help Resource

Chapter 4 / Lesson 16
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