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Economy Shrank last quarter

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1. Suppose you have $500 in savings when the price level index is at 100.
A) If inflation pushes the price level up by 10%, what will be the real value of your savings?
B) What is the real value of your savings if the price level declines by 10%?

2. Economy shrank last quarter
See attached file.

3. If the AS curve shift to the right, what happens to the equilibrium rate of output, and the equilibrium price level? (increase or decrease).

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Solution Preview

1. Suppose you have $500 in savings when the price level index is at 100.

A) If inflation pushes the price level up by 10%, what will be the real value of your savings?
Every item now costs $1.10 instead of $1. ...

Solution Summary

Shifts in price levels and AS curves; lost output and income during recessions are discussed in the solution.

$2.19