# AB 204 Unit 5 Assignment

AB204-02 Unit 5 Assignment

Kaplan University

April 4, 2017 Unit 5Assignment

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.

 2004 price per unit 2005 price per unit Food Clothing \$8 \$20 \$12 \$40

Compute the percentage changes in the price of food and the percentage change in the price of clothing between 2004 and 2005.

Food price increased by 50%

Calculate the percentage change in the CPI between 2004 and 2005.

• % change in price of food = (new price- old price) *100/ old price = (12-8)100/8 = 50%
• Clothing price increased by 100%.
• % change in price of cloth = (new price- old price) *100/ old price = (40-20)100/20 =100%

In 2004, market basket cost=\$1200. [(\$8*100) +(\$20*20)]

In 2005, market basket cost=\$2000. (12*100) +(40*20)

CPI percentage increase=66.7% [(2000-1200)/1200] *100

Do you think the CPI price changes affect all consumers in the economy to the same extent? Explain.

Yes, CPI price changes affects all customers to some extent. The price of clothing increased more than the price of food. Therefore, people who purchased more clothing and less food were worse off, and people who purchased more food and less clothing were better off.

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.

CPI2/ CPI1 = PRICE2/PRICE1

180/18 = PRICE2/ 0.30

PRICE2= \$3 The movie ticket is worth \$3 in today’s dollar.

b.In 1930, the CPI was 14 and a cook earned \$20 a week.

The cooks earning now= (180/14) *20= \$257.14 in today’s dollar.

c.In 1940, the CPI was 16 and a gallon of gas cost \$0.20.

The gas cost now= (180/16) *.20 =\$2.25 in today’s dollar.

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 A B C AdultPopulation LaborForce Employed Unemployed UnemploymentRate Labor-ForceParticipationRate 120,000 64500 60,000 4,500 6.98 53.75 46,667 28,000 25000 3,000 10.71 60 70,000 40,000 36000 4000 10 57.14

Explanation: Formulas below

The unemployment Rate = percentage of the total Labor force of those who are unemployed

= (Unemployed/Total Labor Force) *100

Labor Force = Employed +Unemployed

Labor Force Participation Rate= (Labor Force/Population) *100

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 1987 Real GDP (2000 prices)(in million) Population(in million) \$6,435,000 243 \$11,092,000 296.6

1) Real GDP per person for 1987: Real GDP / Population = \$6,435,000 Million / 243 Million = \$26,481.48

2) Real GDP per person for 2005: Real GDP / Population = \$11,092,000 Million / 296.6 Million = \$37,397.17

3) Percentage change in Real GDP per capita from 1987 to 2005: [Ending Real GDP per person � Beginning Real GDP per person] / Beginning Real GDP per person = [\$37,397.17 – \$26,481.48] / \$26,481.48 = 41.22%

References