ECON 20B Study Guide - Real Interest Rate, Phillips Curve, Gdp Deflator

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.

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

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

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.

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.

1) Assume the following data for a country: total population, 500; population under 16 years of age or institutionalized, 120; not in labor force, 150; unemployed, 23; part-time workers looking for full-time jobs, 10. What is the size of the labor force? What is the unemployment rate?

2) If the CPI was 110 last year and is 121 this year, what is this year’s rate of inflation? In contrast, suppose that the CPI was 110 last year and 108 this year. What is this year’s rate of inflation? What term do economics use to describe this second outcome?

3) Use the hypothetical economy data in the table below to answer the following questions.




a) What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Use Excel to graph both the aggregate demand and aggregate supply curves. Can there be equilibrium level of output at below full employment?

b) At what price level will aggregate supply FALL BELOW [equal] aggregate demand? At what price level will demand fall below aggregate supply? If given a price level of 250, will aggregate demand exceed supply?

c) If the aggregate demand schedule shifted by $140 billion to the right at every level, what would be the new equilibrium level of income?

8. Which of the following items is included in the calculation of GDP?

a.Purchase of a used car.

b.Purchase of 100 shares of General Motors stock.

c.Purchase of an intermediate good.

d.None of the above would be included

9. Difference between Real and Nominal GDP is:

a.Change in price level from base year to current year

b.Measured by excluding some of the sectors

c.That real GDP is always smaller than Nominal GDP

d.None of the above

10. GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports are:

a.+$53 billion

b.-$84 billion

c.-$47 billion

d.-$161 billion

11. Equality (As a tool of measurement for quality of life) refers to a balance of Economic and Political Power between which two groups?

a.Homeless and Employed

b.Men and Women

c. Different ethnic groups

d. Rich and Poor

12.What is inflation?

a.A fall in the general level of prices occurs, workers need more money to pay for goods, clothing, and shelter

b.A rise in the general level of prices occurs, workers need more money to pay for goods, clothing, and shelter

c.A rise in the general level of prices occurs, workers need less money to pay for goods, clothing and shelter

d.A fall in the general level of prices occurs, workers need less money to pay for goods, clothing and shelter

13.Which of the following is the best measure of how inflation affects consumers?

A.The increase in the price of gold

B. The increase in the consumer price index

C. The increase in the price of a single product

D. The decrease in the consumer price index

14. The Consumer Price Index (CPI)

a. Measures the rate of output in the economy over one year.

b.Measures the increase in wholesale prices since a base year.

c.Is deficient because it does not include medical prices.

d.Is used to calculate the rate of inflation over a given period.

15.How is the unemployment rate computed?

a. Number of unemployed persons divided by the number of economically active (i.e. employed and unemployed) persons aged fifteen years and over.

b.Number of unemployed persons divided by the number of people aged fifteen years and over.

c.Number of unemployed persons divided by the number of employed persons aged fifteen years and over.

d.None of the above