Assume you live in a hypothetical developed economy. Last year, the CPI was repo

Question

Assume you live in a hypothetical developed economy. Last year, the CPI was reported to be 172 and this year it is reported to be 178. Which of the following might you most reasonable conclude from this information? In the last year, prices have fallen by more than 5%. In the last year prices have fallen by between 1% and 5%. In the last year prices have increased by between 1% and 5%. In the last year prices have increased by more than 5%. QUESTION 22 3.3333 points Assume you live in a hypotehtical developed economy. Last year, the CPI was reported to be 185 and this year it is reportedto be 195. In the last year, you received a 7% nominal pay increase. Which of the following best describes that pay increase , Your salary has increased in nominal and real terms. 0 Your salary has increased in nominal terms but actually decreased in real terms. Adjusted for inflation, your salary has not changed. O Adjusted for inflation, your salary has declined

Explanation / Answer

CPI in the last year is 172 and in this year is 178. So the inflation in the last year compared to this year was (172-178)*100/178=-3.37%. As CPI in the last year was less so in the last year price has been fallen by between 1% to 5%. The second option is correct. Last year CPI was 185 and this year CPI is 195. So the inflation in the last year was (185-195)*100/195=-5.13%. So the inflation was less in the last year. As nominal pay increases and inflation decreases, real wage (W/P) is increased. The first option is correct. MPC+MPS=1 MPS=1-MPC=1-0.2=0.8. The third option is correct. MPC is always in between 0 and 1. MPC in the US tends to be higher than in many countries. The third option is correct.

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