ECON 2H03 Lecture : Class Notes.docx
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TABLE 1 : In 2013 | ||
Item | Quantity | Price |
Bananas | 100 | $10 a bunch |
Coconuts | 50 | $12 a bag |
TABLE 2: In 2014 | ||
Item | Quantity | Price |
Bananas | 110 | $15 a bunch |
Coconuts | 60 | $10 a bag |
An island economy produces only bananas and coconuts. Table 1 gives the quantity produced and prices in 2013 and Table 2 gives the same information for 2014.
1. Nominal GDP in 2013 is __________.
2. Nominal GDP in 2014 is __________.
3. Real GDP (in terms of 2013 prices) in 2013 is __________.
4. Real GDP (in terms of 2013 prices) in 2014 is __________.
5. The % increase in nominal GDP from 2013 to 2014 is __________.
6. The % increase in real GDP from 2013 to 2014 is ___________.
You are given the following table of prices:
Item |
Price in 2013 |
Price in 2014 |
1 Loaf of Bread |
$ 1.00 |
$ 1.50 |
1 Pound of Chicken |
$ 6.25 |
$ 7.00 |
1 Gallon of Milk |
$ 2.00 |
$ 3.00 |
1 Gallon of Gasoline |
$ 3.00 |
$ 2.80 |
1 year of cable (TV and Internet) |
$ 840.00 |
$ 960.00 |
1 Pair of Jeans |
$ 50.00 |
$ 60.00 |
1 year of Rent for Apartment |
$ 8,400.00 |
$ 9,000.00 |
To represent the purchases of the average consumer throughout the year, the government uses the following market basket:
52 loaves of bread, 30 pounds of chicken, 35 gallons of milk, 416 gallons of gasoline, 1 year of cable, 12 pairs of jeans, 1 year of rent for an apartment.
a.Calculate the cost of the market basket in 2013 and the cost of the market basket in 2014.
b.Using 2013 as the base year, calculate the CPI for 2013 and 2014.
c.Calculate the CPI inflation rate between 2013 and 2014.
d.Now suppose the nominal wage of an individual for 2013 and 2014 is given as follows:
Year |
Nominal Wage |
2013 |
$ 56.00 |
2014 |
$ 60.00 |
(i)What is the percentage change in the nominal wage between 2013 and 2014?
(ii)Calculate the real wage for both years in 2013 dollars (i.e. using 2013 as the base year).
(iii)What is the percentage change in the real wage between 2013 and 2014?
(iv)Has the purchasing power of the worker increased or decreased between 2013 and 2014? Explain how you know this (using a previous calculation from above).