Assignment
According to the author of the textbook, economists measure prices in the macro-economy to generate a consumer price index (CPI) and, then employ the CPI to compare dollar figures from different points in time and to adjust interest rates for inflation. This helps measure the change in the cost of living. The labor market is also introduced, and enables us to see how full utilization of labor resources improves the level of production and the standard of living. Economists measure the performance of the labor market using unemployment statistics. Based on the Assignment questions explain the cost of living and unemployment issues in the economy.
This Assignment will assess your knowledge based on the following outcome:
2: Explain macroeconomic aggregates such as the GDP, inflation rate, unemployment rate, and their implications on the national economy.
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.
| |
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
|
Discuss how to measure the cost of living and rate of unemployment in the economy.