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Chapter 24 Tutorial Sheet

The document contains multiple questions related to measuring the cost of living, focusing on calculating prices, Consumer Price Index (CPI), inflation rates, and real versus nominal values across different years and goods. It includes examples involving various commodities such as vegetables, tennis balls, karaoke machines, and movie tickets, requiring calculations based on given prices and quantities. The questions aim to illustrate the application of economic concepts in real-life scenarios.

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7 views3 pages

Chapter 24 Tutorial Sheet

The document contains multiple questions related to measuring the cost of living, focusing on calculating prices, Consumer Price Index (CPI), inflation rates, and real versus nominal values across different years and goods. It includes examples involving various commodities such as vegetables, tennis balls, karaoke machines, and movie tickets, requiring calculations based on given prices and quantities. The questions aim to illustrate the application of economic concepts in real-life scenarios.

Uploaded by

omarhassan13589
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Chapter 24

Measuring the Cost of Living

Question 1:
The residents of Vegopia spend all of their income on cauliflower, broccoli,
and carrots. In 2016, they buy 100 heads of cauliflower for $200, 50 bunches
of broccolis for $75, and 500 carrots for $50. In 2017, they buy 75 heads of
cauliflower for $225, 80 bunches of broccolis for $120, and 500 carrots for
$100.
a) Calculate the price of each vegetable in each year.
b) Using 2016 as the base year, calculate the CPI for each year.
c) What is the inflation rate in 2017?

Question 2:
Suppose that people consume only three goods, as shown in the table below.
Tennis Tennis Golf Balls Golf Cans of Coke Cans of
Balls Balls Quantity Balls Quantity Coke
Quantity Price Price Price

2016 100 $2 100 $4 200 $1

2017 100 $2 100 $6 200 $2

a) What is the percentage change in the price of each of the three goods?
b) Using a method similar to the consumer prices index, compute the
percentage change in the overall price level.
Question 3:
A small nation of ten people enjoys music and singing. All they produce and
consume are karaoke machines and CDs, in the amounts shown in the table
below.
a) Using a method similar to the consumer prices index, compute the
percentage change in the overall price level. Use 2016 as the base year, and
fix the basket at 1 karaoke machine and 3 CDs
Karaoke Machines Price CDs Price
Quantity Quantity
2016 10 $40 30 $10

2017 12 $60 50 $12

b) Using a method similar to the GDP deflator, compute the percentage


change of the overall price level. Also use 2016 as the base year.

Question 4:
Quantity Price of Quantity of Price of Quantity Price of
of Apples Apples Bananas Bananas of oranges oranges
Year 1 10 $2 5 $1 3 $1.5
Year 2 10 $2.5 5 $1.2 3 $1.8

a) Calculate the Consumer Price Index (CPI) for Year 2, using Year 1 as the
base year.
b) Calculate the inflation rate from Year 1 to Year 2.
c) In Year 1, the nominal GDP for the country is $500 billion, and the GDP
deflator is 120. Calculate the real GDP for Year 1.
Question 5:
a) An engineer earned $30,000 in 2000 when the CPI was 172. In 2025, the CPI is 310.
What is the engineer’s 2000 salary equivalent in 2025 dollars?

b) Suppose a bank offers a nominal interest rate of 12% per year. During the same period,
inflation is running at 5%. What is the real interest rate?

Question 6:
a) In 1990, the price of a movie ticket was $4. The CPI in 1990 was 130, and in 2025 it is
310. What would be the equivalent price of a movie ticket in 2025 dollars?

b) A loaf of bread cost $1.50 in 1985 when the CPI was 100. Today, the CPI is 310.
a) What would be the price of bread today if it kept up exactly with inflation?

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