BU204 02 Langhoff Melissa Unit5

Unit 5 Assignment
BU204_02 Macroeconomics

Melissa Langhoff

Unit 5 Assignment
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.
2004:
([12-8]/8 x 100)
(4/8 x 100)
.5 x 100
50%
2005:
([40-20]/20 x 100)
(20/20 x 100)
(1 x 100)
100%
b. Calculate the percentage change in the CPI between 2004 and 2005.
2004: 2005:
(8 x 50 + 20 x 10) (12 x 50 + 40 x 10)
(400 + 200) (600 + 400)
800 1000
Percentage of change:
([1000-800]/800 x 100)
(200/800 x 100)
(.25 x 100)
25%
c. Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain.

The increase in clothing will most likely solely affect those that purchase large amount of clothes rather than those that purchase large amounts of food. Just like as the increase in food prices would affect those that purchase food, opposed to those that purchase more clothes.
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. (.30 x 180)/18 = $3
b. In 1930, the CPI was 14 and a cook earned $20 a week. (20 x 180)/14 = $257.14
c. In 1940, the CPI was 16 and a gallon of gas cost $0.20. (.20 x 180)/16 = $2.25
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
64,500
60,000
4,500
7
54
B
46,667
28,000
43,667
3,000
11
60
C
70,000
40,000
36,000
4,000
10
57

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

In 1987 the real GDP per person is 6,435,000/243=$26,481 and in 2005 it was 11,092,000/296.6=$37.397. The percentage of change between 1987 and 2005 is (37,397-26,481)/26,481= 41.2%.

References: Mankiw, N. Principles of Macroeconomics. 7th Edition. Cengage Learning, 2015

References: Mankiw, N. Principles of Macroeconomics. 7th Edition. Cengage Learning, 2015