ch 8- smartwork

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Refer to the table. This country produces only two goods, CDs and books. You are told that the CPI for this country in 2012 was 141. If the base year is 2011, how many books should be present in the basket of goods and services that was used to calculate the CPI?

100 x 15 + b x 20/ 100 x 10 + 15 x b 141= 1500 +20b/1000 + 15b x 100 141,000+2115b= (1500 + 2,0b) x 100 141,000 +2,115b = 150,000 + 2,000b 2,115b-2,000=150,000- 141,000 115b= 150,000-141,000 115b=9,000 b=78

If the CPI today is 240, then what is the inflation rate since the base year?

240- 100 x 100 =140%

Suppose you want to calculate a university price index (UPI). Let's keep things simple and assume that a typical student buys seven textbooks, nine pizzas, and twelve six-packs of energy drinks in a year. The table below shows this market basket and the price of each good in 2015 and 2016. For the questions below, assume that 2015 is the base year for the UPI.

7 x 210 + 9 x 10 + 12 x 12/ 7 x 180+ 9 x 12 + 12 x 10 x 100 =114.52 14.52 %

Inflation imposes many costs on the economy: shoe-leather costs, money illusion, menu costs, wealth redistribution, price confusion, future price level uncertainty, and tax distortions. For each of the following statements, determine the associated cost. Be careful! Some of the statements may not go into any of the categories because two categories are missing.

Shoe-leather costs Kallie is taking more trips to the ATM now than in the past. Money illusion John thinks his new salary in NYC will increase his standard of living. Menu costs Carson is angry because the price of donuts increased from $1 to $2 since last week. Wealth redistribution Your grandmother's savings account pays 2% interest, but inflation is 5%. Price confusion A jeweler observes the price of gold rise and wonders if there is a shortage of gold.

Suppose that the residents of Greenland play golf incessantly. In fact, golf is the only thing that they spend their money on. They buy golf balls, clubs, and tees. In 2010, they bought 2,000 golf balls for $3.00 each, 200 clubs for $80.00 each, and 1,000 tees for $0.10 each. In 2011, they bought 2,100 golf balls for $3.50 each, 250 clubs for $90.00 each, and 1,500 tees for $0.15 each. Using 2010 as the base year, answer the following questions. Give all answers to one decimal.

a ) as 2010 is the base year the CPI in 2010 is 100 b) 2000 x 3.50 + 200 x 90.00 + 1000 x 0.15/ 2000 x 3 + 200 x 80 +1000 x 0.1 =113.8 c)13.8 %

In 1938 the Fair Labor Standards Act (FLSA) established an hourly minimum wage of 25 cents per hour. Since then, the minimum wage has increased 22 times, and it currently stands at $7.25 per hour. The table below shows the minimum wage and the CPI for various years since 1938. Refer to the information in the table to answer the questions below.

part 1 1979 2009 2016 1990 1938 part 2 If the minimum wage in 2016 had kept up with the increase in the cost of living since 1979, the minimum wage would have been 2.90 x 240 / 69 =10.08 part 3 If the minimum wage in 2016 had kept up with the increase in the cost of living since 2009, the minimum wage would have been 7.25 x 240 / 210 8.28

Imagine that after completing your economics course (you get an A, of course) you are at a family gathering. Your grandmother asks you about a news story she read this morning. The story explained that when the government adjusts Social Security payments for inflation, it generally uses the CPI-W, which is the Consumer Price Index for Urban Wage Earners and Clerical Workers. Because senior citizens spend a lot more than average on medical care, adjustments to their Social Security payments are not keeping up with their cost of living.Your grandmother has two questions:1. Last year I received $15,000 per year from the government. The story said that the CPI increased from 144 to 162. How much will I get this year?2. Why might this additional money not allow me to maintain my standard of living?

part one 1 come up with a basket of goods bought by a tyipical consumer 2 find out the prices of the different goods 3. calculate how much the basket costa in each period 4. convert the cost of a basket to an index number part 2 162-144/144 x 100 =12.5% 15000x 12.5 =1875 15,000 + 1875 = 16875 part 3 1. housing 2. medical care 3. recreation 4. apparel part4 senior citizens spend a lot more than average on medical care, compared to the typical american and the price of medical care has increased more than the average price of all goods.

You might have heard your grandmother say, "When I was your age, candy bars cost a nickel." Like candy bars, the price of fast food has increased over time. In 1957, the year Burger King introduced its Whopper, the price was $0.37. In 2015, a Whopper costed $3.99.Suppose the CPI in 1957 was 28, and the CPI in 2015 was 240. The base year for the CPI is 1983.

the real price of a whopper in 1957 is $1.32 and the real price of a whopper in 2015 is $1.66 in real terms, a whopper was more expensive in 2015. 0.37 x ( 240/ 28) =3.17

Your friend currently works as an accountant at a public accounting firm in the small town of Beaver Falls, Pennsylvania. He is offered a job in New York City for $60,000. Your friend calls you and tells you that he is excited about the new job offer, which gives him a raise from his current salary of $50,000. Based on your knowledge of economics, you think that

your friend most likely should not be quite so excited because the extremely high cost of living in New York City means his real salary increase will be less than he imagined.


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