# ECON 214 InQuizitive ch. 8 Liberty University Solution

Last year you paid \$24 for a round of golf and \$12 to rent a golf cart. This year it cost you \$30 to golf and \$15 to rent a cart. Based on this simple basket of goods, calculate a price index for this year using last year as the base year.

Suppose the inflation rate is 2% per year. If you currently think of \$40,000 as an acceptable retirement income and are expecting to retire in 40 years, what will the equivalent annual income then be, adjusted for inflation? Round your answer to the nearest dollar.

Your parents bought their first car for \$5,000. The price level in the year your parents bought their car was 50, while the price level today is 200. Calculate how much your parents’ car would have cost if they bought it today.

Gwyn owns a furniture store. She notices prices at other furniture stores have increased dramatically over the past two years. She decides she needs to expand her output because demand must be growing. However, in order to do so, she needs to find a loan. What problems could inflation cause for Gwyn?

Take 2014 as the price index base year. That year, you paid \$80 for a day at a theme park. In 2015, the price was up to \$84. Assuming that the increase reflects the inflation rate and that this rate continues in 2016, match each number to its description.

Thirty years ago Daniel bought a plot of land for \$50,000 when the CPI was 50. Now the CPI is 180 and he sold the land for \$180,000. What issue might inflation cause for Daniel?

The Consumer Price Index (CPI) and the GDP deflator are both price indices, so they both serve as measures of inflation. However, the – uses a smaller basket of goods. The – aims to take into account all final goods and services, whereas the – only includes goods and services sold to –. So, for instance, prices on farm equipment are included in the – but not in the –.

Suppose there is uncertainty about the amount of inflation that will occur during the “Produce” period, between the signing of contracts and the collection of sales revenue. Label each item as being based, ultimately, on a worry that inflation will be higher than expected or that it will be lower than expected.

The velocity of money is the frequency with which money –. The greater the money velocity, the – goods and services are being traded. By the equation of exchange, the money velocity times – equals the price level times –.

Mary’s costs will rise, and for revenue to keep pace she will have to – to keep her prices consistent with inflation. If Mary mistakenly believes the rising price of seafood is the result of increased –, she may misdirect restaurant resources. This would be an example of price –.

Suppose the current CPI is 240 and in 2002 it was 180. A pair of Levi’s jeans costs \$54 today. Based on the CPIs, what would you expect the 2002 price to have been for the same style of Levis, in a similar retail outlet?

Two things tempt governments to enact inflationary policies. The first is –, which can be paid off by –. The second is –economy, which in the short term can be jump-started by a –increase in the money supply.

You live in Atlanta and earn \$95,600 a year. Your boss offers you a \$10,000 raise and the opportunity to move to another city and work remotely. If maintaining at least the same real wage is your only concern, select all the cities to which you could relocate.