Purchase Solution

Discuss Annual Percent Change and rate of inflation for CPI index

Not what you're looking for?

Ask Custom Question

Please see the attached file.

Provide the correct short summaries to the following questions on annual percent change or rate of inflation figures.

The following link will provides the applicable chart.

http://www.minneapolisfed.org/community_education/teacher/calc/hist1800.cfm

The price level starts at 50 in 1800. Thus, as long as the price level trends back to 50 over time that means that inflation in the economy was canceled in a future year by deflation. (Inflation represents a basket of increase prices while deflation represents a basket of decreasing prices).

Look at 1800. Then, look at 1943. Notice that the index is still at around 50. Thus, we can say that prices trended up and down some but a basket of goods that cost $50 in 1800 still only cost $51.80 in 1943. Did it surprise you that prices were the same 143 years later?

Look at the prices from 1800 to 1943 again and notice how we had years where prices actually dropped (deflation)? Could that happen again and why or why not?

Look at the period from 1943 until today. Prices moved from 51.8 to 657. Thus, we can say that a house that cost say $20,000 in 1943 would cost $20,000 times 657/51.8 or ~ $254,000 today if the house went up at the same rate as inflation.

Thus, can we say that the above house did not really go up at all in real terms? Why? Can what we think are returns or nothing more than changes in prices due to inflation? Since the index dropped before does that show that houses can drop in price as well as go up in price?

Attachments
Purchase this Solution
Solution Summary

The expert discusses annual percent change and the rate of inflation for CPI index.

Solution Preview

Look at 1800. Then, look at 1943. Notice that the index is still at around 50. Thus, we can say that prices trended up and down some but a basket of goods that cost $50 in 1800 still only cost $51.80 in 1943. Did it surprise you that prices were the same 143 years later?

It did surprise me that after 143 years, the prices were the same. However, when I think more deeply about the trend of the prices of this basket of goods over this 143 year period, then I shouldn't be very surprise that prices remain relatively unchanged. Though, this basket of goods didn't change much, the way they were manufactured drastically did. The industrial revolution introduced the assembly line, hence the ...

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Basics of corporate finance

These questions will test you on your knowledge of finance.

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

View More Free Quizzes
Related BrainMass Solutions

  • interest rate and present value problems

    In year 1, the nominal interest rate is 4.5 percent and the inflation rate is 3.1 percent. In year 2, nominal interest rate is 6.4 percent and the inflation rate is 5.2 percent. In which year is the real interest rate the highest? Why? c.

  • Predictions of inflation, unemployment, and RGDP

    The percent annual change has been calculated for you in the second to last column.

  • current status of Real GDP, unemployment rate, inflation rate

    Inflation rate - change in computation In the Swedish CPI publication for January 2005 and onwards, the inflation rate will be computed as the change in per cent of the CPI number over the preceding twelve months.

  • important economic measures

    CPI is important because it speaks about the rate of inflation for the country.

  • Inflation in the Southeastern United States

    The Consumer Price Index for All Urban Consumers (CPI-U) for the South increased 0.6 percent in February, the U.S. Bureau of Labor Statistics reported today.

  • Calculating the Inflation Rate

    The rate of inflation is the rate of change of the general price level and is measured as: Rate of inflation for year(t)= [{Price level(year t)-Price level (year t-1)}/ Price level (year t)]*100 Inflation = [{CPI(this year)-CPI(last year)}/CPI

  • Macroeconomics - inflation, unemployment, consumer price index

    All inflation is anticipated. If the Commerce Bank of Beverly Hills charges an interest rate of 35 percent in year 2, what is the bank's real interest rate? the CPI has risen 160/125 = 1.28 or 28 percent inflation.

  • Real vs nominal interest rates

    Given this information, what is the approximate real rate of interest on short- term Treasury bills? Is it likely that your answer would change if you used some alternative measure for the inflation rate, such as the Consumer Price Index (CPI)?

  • Consumer Price Index - All Urban Consumers

    Take the ratio of each year's annual CPI to the previous value and scale the second quantity to 1 by simply dividing the two values. Note: parts c-e below! c.) Compute the annual inflation rate by subtracting 1 from the ratio from part c.

View More Related Solutions