Assume there is a simple
Subject: Economics / General Economics
Question
1) Assume there is a simple economy where people consume only 2 goods, food and clothing. Further assume that the market basket of goods used to compute the CPI consists of 100 units of food and 20 units of clothing.
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Food
Clothing
2004 price per unit
$8
$20
2005 price per unit
$12
$40
a. Compute the percentage changes in the price of food and the percentage change in the price of clothing between 2004 and 2005.
b. Calculate the percentage change in the CPI between 2004 and 2005.
c. Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain.
2) Calculate how much each of the following items is worth in terms of today's dollars using 180 as the price index for today.
a. In 1925, the CPI was 18 and the price of a movie ticket was $0.30.
b. In 1930, the CPI was 14 and a cook earned $20 a week.
c. In 1940, the CPI was 16 and a gallon of gas cost $0.20.
3) The table below uses data for 3 hypothetical countries. All the number values are in thousands. Complete the blank entries in the table below.
Country
Adult
Population
Labor
Force
Employed
Unemployed
Unemployment
Rate
Labor-Force
Participation
Rate
A
120,000
60,000
4,500
B
28,000
3,000
60
C
70,000
40,000
10
4) The following table indicates U.S. real GDP data. Calculate real GDP per person for 1987 and 2005. Then use real GDP per capita to compute the percentage change in real GDP per person from 1987 to 2005.
Year
Real GDP (2000 prices)
(in million)
Population
(in million)
1987
$6,435,000
243
2005
$11,092,000
296.6
