Problem
1. If healthcare costs make up 10% of total expenditures and they rise by 15% while the other components in the consumer price index remain constant, by how much will the price index rise?
2. Wage agreements and loan contracts are two types of multi-period agreements that are important for economic growth. Suppose you sign a two-year job contract with Wells Fargo stipulating that you will receive an annual salary of $93,500 plus an additional 2% over that amount in the second year to account for expected inflation.
a. If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why?
b. If the inflation rate turns out to be 1% rather than 2%, who will be hurt? Why?
Suppose that you also take out a $1,000 loan at the Colonial Credit Union. The loan agreement stipulates that you must pay it back with 4% interest in one year, and again, the inflation rate is expected to be 2%.
c. If the inflation rate turns out to be 3% rather than 2%, who will be hurt? Why?
d. If the inflation rate turns out to be 3% rather than 2%, who will be helped? Why?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.