The table above gives the purchases of a typical consumer in a country comprised of one large city. These consumers purchase only restaurant meals and parking. The year 2010 is the reference base period
a. Find the total cost of the CPI market basket for 2010 and 2011.
b. What is the CPI in 2010 and in 2011?
c. What is the inflation rate between 2010 and 2011?
a. The total cost of the CPI market basket in 2010 equals (100 meals × $10 ) + (50 parking × $100 ) = $6,000. The total cost of the CPI market basket in 2011 equals (100 meals × $12 ) + (50 parking × $97.50 ) = $6,075. The quantities are the same in 2010 and 2011. If the quantities differed, the 2010 quantities would be used because 2010 is the base year.
b. The CPI in 2010 is 100 because 2010 is the base period. (Alternatively, the CPI in 2010 equals ($6,000)/$6,000 ) × 100 = 100.) The CPI in 2011 equals ($6075)/($6,000 ) × 100 = 101.25.
c. The inflation rate between 2010 and 2011 equals (101.25 - 100)/(100 ) × 100 = 1.25 percent.
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If the Federal Reserve conducts an open market sale, the
A) interest rate will decrease. B) interest rate will increase. C) interest rate will not change. D) money supply is increased.
A savings and loan strives for a 6% real return on its loans and estimates a 7% annual rate of inflation. It should therefore charge its borrowers a nominal interest rate of
A) 13%. B) 7%. C) 6%. D) 1.17%. E) 1%.
Equations for C, I, G, and NX are given below. If the equilibrium level of GDP is $32,000, what is the marginal propensity to consume?
C = 5,000 + (MPC)Y I = 1,500 G = 2,000 NX = -500 A) 0.67 B) 0.75 C) 0.8 D) 0.9
The following interactions between binary and continuous variables are possible, with the exception of
A) Yi = ?0 + ?1Xi + ?2Di + ?3(Xi × Di) + ui. B) Yi = ?0 + ?1Xi + ?2(Xi × Di) + ui. C) Yi = (?0 + Di) + ?1Xi + ui. D) Yi = ?0 + ?1Xi + ?2Di + ui.