2.04

1.Suppose a market basket of goods and services includes the goods below for two successive years. What is the consumer price index for 2013? Explain.

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Spending in base year = 10 +72 +12
Spending in base year = $94
Spending in current year = 12+84+18
Spending in current year = $114
The CPI for Year 2013 is $121.3. To find CPI you must divide the current year by the base year and multiply by 100. 114/94 is 1.2127 and multiplying that by 100 gives you the CPI of 121.3.

2. Conduct an Internet search on the "national debt to the penny." How much is the current national debt? Once you find out the size of the debt, determine if the federal government is helped or hurt by unanticipated inflation if the interest rate on the debt and its payments are fixed. Explain.
The current national debt is $17,747,150,188,000.
The government is helped by inflation with regard to the debt, since it will get increased tax revenues as a result of inflation, but still owe only the original amount of interest and principal on the bonds it sold to finance the debt. Also, inflation will cause people to demand higher interest on bonds and the government will have to pay more for borrowing money.

3. Maddie's nominal income was $33,000 in 2012. In 2013, because of her excellent work ethic, she received a raise that increased her nominal income to $35,000. Maddie knew a lot about inflation so she decided to see how much of a raise she really received. After researching the consumer price index at the Bureau of Labor Statistics web site, she found that the CPI for 2012 was 110 and that it jumped to 125 in 2013. Calculate the percent change in Maddie's real income after she was given a raise. Was she hurt or helped by this unanticipated inflation? Explain.
Maddie was hurt by this unanticipated