Question

1.

A basket of goods and services purchased by an average urban consumer had a cost of $340 in the year 2015, $350 in the year 2016, and $360 in the year 2017. You may assume the base year is 2015.

The inflation rate between 2015 and 2016 was _____ the inflation rate between 2016 and 2017.

Group of answer choices

the same as

lower than

higher than

it is impossible to say from the information given

2.

Bill’s nominal income in 1990 was $38,256 per year. The CPI had a value of 141.67 in 1990 and had a value of 222.33 in 2017. What is Bill’s real income in 1990, measured in 2017 dollars? Enter a number rounded to two decimal places with no dollar sign.

3.

Indicate whether each of the following affect consumption spending (C), investment spending (I), government spending (G), net export spending (NX), or none of the above (N). Enter only the letter given in parenthesis.

Carmax sells a three year old car to John  .

The government sends a social security payment to your grandfather  .

John spends his social security check on a new computer  .

Publix buys 4 new computers  .

You pay your tuition to UCF  .

4.

The inflation rate between the years 2000 and 2001 was 3.79%. Based on this information, a basket of goods that cost $150 in the year 2000 would now cost how much in the year 2001? Enter a number rounded to two decimal places.

Answer 1

1. Option A the same as

Cost of basket of goods in 2015 = $340

Cost of basket of goods in 2016 = $350

Cost of basket of goods in 2017 = $360

CPI in 2015 = Cost of Basket of Goods in 2015 / Cost of basket of goods in base year 2015 " 100

= 340 / 340 * 100 = 100

CPI in 2016 = Cost of Basket of Goods in 2016 / Cost of Basket of Goods in 2015 * 100

= 350 / 340 * 100 = 102 .9

CPI in 2017 = Cost of Basket of Goods in 2017 / Cost of Basket of Goods in 2015 * 100

= 360 / 340 * 100

= 105.9

Inflation between 2015 and 2016

= (102.9 - 100) / 100 * 100

= 2.9%

Inflation between 2016 and 2017

= (CPI in 2017 - CPI in 2016) / CPI in 2016 * 100

= (105.9 - 102.9) / 102.9 * 100

= 2.9%

Inflation rate is same between 2015 to 2016 and 2016 to 2017.

2. Bill's Real Income in 1990 measured in 2017 dollars

= Nominal Income in 1990 * (CPI in 2017 / CPI in 1990)

= 38256 * 222.33 / 141.67

= 60,037.10

3. Following are categories

GDP by Expenditure Method = Consumption Spending (C) + Investment Spending (I) + Government Purchases (G) + Net Exports Spending (NX)

Part a
Carmax sells a three year old car to John .

(N).Used goods are not included im GDP. GDP only includes goods and services produced in the current year. The car is 3 years old and would have been included in the GDP of original year of purchase and sale.

Part b

The government sends a social security payment to your grandfather .

(N). Social Security Payment is transfer payment. Transfer Payments are not included in GDP as these do not add any value to the production of goods and services.

Part c

John spends his social security check on a new computer

(C). John spent money to purchase new computer for his final personal consumption. So it will be considered as Consumption Spending.

Part d

Publix buys 4 new computers .

(I). Publix Super Markets, Inc., commonly known as Publix, is an employee-owned, American supermarket chain. It buys computers which will smooth out the business operations and thus will be included as Investment Spending

Part e

You pay your tuition to UCF .

(C). Payment of tution fees to UCF is final consumption expenditure incurred for personal consumption of service. Thus included as Consumption Spending.

4. Cost of basket of goods in 2000 = $150

Inflation Rate = 3.79%

Cost of Basket of Goods in 2001

= 150 + 3.79% of 150

= 150 + 5.685

= $155.69