1.Your savings account pays 4 percent per year: Each $100 in the bank grows to $104 over a 1-year period. If prices increase by 3 percent per year, by keeping $100 in the bank for a year you actually gain $__________.
2. You earn 4 percent interest on funds in your moneymarket account. If consumer prices increase by 5 percent a year, your earnings on $2,000 in the money-market account is $__________ per year.
3. Suppose that over a 1-year period, the nominal wage increases by 2 percent and consumer prices increase by 5 percent. Fill in the blanks: The real wage __________ by __________ percent.
4. Suppose you currently live and work in Cleveland, earning a salary of $60,000 per year and spending $10,000 for housing. You just heard that you will be transferred to a city in California where housing is 50 percent more expensive. In negotiating a new salary, your objective is to keep your real income constant. Your new target salary is $__________.
5. Between 1974 and 2011, the federal minimum wage increased from $2.00 to $7.25. Was the typical minimum-wage worker better off in 2011? __________ (Yes/No)
6. Suppose you graduate with $20,000 in student loans and repay the loans 10 years later. Which is better for you, inflation (rising prices) or deflation (falling prices)? __________ (Related to Application 5 on page 70.)