LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 12, Problem 13P
To determine
Explain how the probability of finding a job over time is different under the status quo and proposed scheme.
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Your salary is currently $95,000. The CPI last year was 220 and the CPI today is 235. What should your new salary equal once it is adjusted for inflation?
Question 10 options:
a)
$101,477
b)
$98,921
c)
$96,000
d)
$99, 557
John works for a government agency in California making $70,000 per year. He is being transferred to a branch office in Tennessee. The salary reduction associated with transfer is 11%. The Cost of Living Index (similar to consumer price index or equipment price index) in California is 132 whereas the Cost of Living Index in Tennessee is 95.
a. How much extra income does John made as a result of the reduced Cost of Living?
b. What is the adjusted salary of John based on the Cost of Living?
Suppose Damaris is a sports fan and buys only football tickets. Damaris deposits $3,000 into a savings account that pays an annual nominal interest
rate of 5%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a football ticket has
a price of $15.00.
Initially, Damaris's $3,000 deposit has a purchasing power of
football tickets.
For each of the annual inflation rates given in the following table, first determine the new price of a football ticket, assuming it rises at the rate of
inflation. Then enter the corresponding purchasing power of Damaris's deposit after one year in the first row of the table for each inflation rate.
Finally, enter the value for the real interest rate at each of the given inflation rates.
Hint: Round your answers in the first row down to the nearest football ticket. For example, if you find that the deposit will cover 20.7 football tickets,
you would round the purchasing power down to 20…
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