Reference no: EM132456907

1. What is the difference between a change in relative price and a change in general price? Give an example of each to make you point.

2. From November 25, 2013 until June 2, 2014 the average price of 87 octane gasoline at the pump in the US jumped from $3.24 to $3.62 per gallon. Is this rise in price, in and of itself, considered "inflation"?

3. Describe the difference in calculation of the headline rate of consumer inflation and the core rate of inflation.

4. Would unions fighting with management trying to get the highest raise possible be best served to use the headline rate or the core rate as a measure of inflation when negotiating a contract?

5. Why is the core CPI better suited for understanding inflationary pressures than the headline CPI?

6. List and briefly describe three theoretical causes of inflation in the short run. If GDP is currently running faster than potential GDP, can we say, based on that observation alone, that inflation will rise in the near future? Why or why not?