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Principles of Macroeconomics

Robert Frank, Ben Bernanke

Chapter 5

Inflation and the Price Level - all with Video Answers

Educators

Chapter Questions

00:39

Problem 1

Explain why changes in the cost of living for any particular individual or family may differ from changes in the official cost-of-living index, the CPI.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:05

Problem 2

What is the difference between the price level and the rate of inflation in an economy?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
02:03

Problem 3

Why is it important to adjust for inflation when comparing nominal quantities (for example, workers' average wages) at different points in time? What is the basic method for adjusting for inflation?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
00:52

Problem 4

Describe how indexation might be used to guarantee that the purchasing power of the wage agreed to in a multiyear labor contract will not be eroded by inflation.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
02:03

Problem 5

Give two reasons why the official inflation rate may understate the "true" rate of inflation. Illustrate by examples.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator

Problem 6

"It's true that unexpected inflation redistributes wealth, from creditors to debtors, for example. But what one side of the bargain loses, the other side gains. So from the perspective of the society as a whole, there is no real cost." Do you agree? Discuss.

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01:30

Problem 7

How does inflation affect the real return on holding cash?

Tristan Wille
Tristan Wille
Numerade Educator

Problem 8

True or false: If both the potential lender and the potential borrower correctly anticipate the rate of inflation, inflation will not redistribute wealth from the creditor to the debtor. Explain.

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