Discussion#2
Complete the following four questions.
1. The
real GDP in the third quarter of 2021 was found to be $500,000 and the number of
hours
worked was
5,000. In the third quarter of 2022, the
real GDP increased to $720,000 while
the number of
hours worked increased to 6,000. Given
these values, solve for labor
productivity in
both quarters and solve for the growth rate of labor productivity between the
two quarters. (19 points)
2.
The typical household purchases two goods: limes and lemons. Each month, the household
purchases 12
limes, while also purchasing 20 lemons.
In July 2021, the limes, on average,
had a price of
$0.65 per lime and the price of the lemons was $0.60 per lemon. In July 2022,
the price of
the limes, increased to $0.70 per lime and the price of the lemons increased to
$0.75 per lemon. (36 points)
a.
Using these values, solve for the CPI, assuming that July
2021 is the base month.
b.
Solve for the CPI growth rate between July 2021 and July
2022.
3.
Wages (15 points). Please note there is no part b in
this question. There is parts a, c, and
d.
a. If your wage in June 2022, according to your
employer is $21.00 per hour, making your
total wage for the month, which is the
frequency with which the CPI is measured, a total
of $2940, and the CPI is 113.67, solve
for the real wage for the month of June 2022,
based upon the total wage of $2940 received
for the month of June 2022.
c.
If you do not receive a wage increase in July 2022, but
the CPI rises to 115.41, solve for the real wage for the month of July 2022,
based upon the total wage of $2940.
d.
What is the relationship between the real wage and the
CPI?
4.
Suppose you take out a loan for school this year for $17,500. The bank expects that the rate
of
inflation for next year will equal 8%.
You and the bank agree that in one year’s time, you
will
pay back the full amount at an interest rate of 13%. Next year though, there is a sudden
rise
in inflation, causing inflation to equal 15%.
(30 points)
Based
upon this information, answer the following questions.
a.
How much will you pay back in one year, assuming simple
interest?
b. What
is the numerical value for the anticipated rate of inflation?
c. What
is the numerical value for the unanticipated rate of inflation?
d. What
is the numerical value for the real rate of interest?
e. What
is the numerical value for the nominal rate of interest?
f. Who
wins and who loses from this loan example?