Download NAME: MACROECONOMICS AP- CHAPTER 7 – Introduction to

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MACROECONOMICS APCHAPTER 7 – Introduction to Economic Growth and Instability
1. In 2002 Kelsey's nominal income is $40,000 and it increases to $41,000 in 2003. Curious about
her purchasing power, she looks up the CPI in 2002 and finds that at the end of 2002 it was
181.6 and at the end of 2003 it was 185. This is compared to the base year value of 100 in 1984.
What is Kelsey’s real income in 2002?
What is Kelsey’s real income in 2003?
After accounting for inflation, how much did her real income increased by?
What if Kelsey's wages were frozen and she did not receive that raise in 2003? What would her
real income be?
By how much money did her purchasing power decrease?
2. The nominal income of an employee in Chuckecheese in 1992 was $12,000. The CPI for 1992
(the base year) is 100, and the CPI for 1993 is 115. What would the income of the same
employee be in 1993 to keep him at the same purchasing power as in 1992?
3. You got a job in year 2000 with a salary of $25,000. In 2002, you receive a $2000 increase in
your salary. CPI in 2002 with base year in 2000 is 108. Calculate your real income in 2000 and
2002. Calculate the percentage change in your real income.
4. The table below presents some recent macro data for the United States.
Nominal income for a typical RGDP per capita
GDP deflator
family of four in the U.S.
(2000=100)
1990 $41,451
2000 $62,228
$28,448
$34,774
81.59
100.00
CPI-all items, All
urban consumers
(1982-84=100)
134.2
174.6
A. How much was NGDP per capita in the year 2000?
B. Calculate the average annual growth rate in the real income of a typical family of four
in the U.S. over the period 1990-2000. Show your work.
C. Calculate the annual inflation rate in the GDP deflator and in the CPI.
4. Indicate in the space to the left of each of the following the most likely effect – beneficial (B),
detrimental (D), or indeterminate (I) of unanticipated inflation on these persons:
A. _____ A retired business executive who now lives each month by spending a part of the amount that
was saved and deposited in a savings bank.
B. _____ A retired welder who lives on the dividends received from the shares of stock owned.
C. _____ A farmer who (by mortgaging a farm) borrowed at the local bank $500,000 that must be repaid
during the next ten years.
D. _____ A retired couple whose sole source of income is the pension they receive from a former
employer.
E. _____ A widow whose income consists entirely of interest received from the corporate bonds she
owns.
F. _____ A member of a union who works for a firm that produces computers.