Economists measure prices in the macroeconomy to generate a consumer price index (CPI) and, then employ the CPI to compare dollar figures from different points in time and to adjust interest rates for inflation. This helps measure the change in the cost of living. The labor market is also introduced, and enables us to see how full utilization of labor resources improves the level of production and the standard of living. Economists measure the performance of the labor market using unemployment statistics.
Directions
This Assessment requires a combination of short paragraph answers, computations, and completion of a 450500 word essay.
Answer the following questions to explain the cost of living and unemployment issues in the economy.
Section 1: Consumer Price Index
Assume there is a simple economy where people consume only two 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.
Yearly Price Unit
Food
Clothing
2004 price per unit
$8
$20
2005 price per unit
$12
$40
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? If not, how do you determine who wins and who loses in this particular situation? Explain.
Section 2: Changes in Prices and CPI
Calculate how much each of the following items is worth in terms of today’s dollars using 180 as the price index for today.
In 1925, the CPI was 18 and the price of a movie ticket was $0.30.
In 1930, the CPI was 14 and a cook earned $20 a week.
In 1940, the CPI was 16 and a gallon of gas cost $0.20.
Section 3: Employment and Unemployment
The table below uses data for three hypothetical countries. All the number values are in thousands.
Complete the following table:
Country
Adult
Population
Labor
Force
Employed
Unemployed
Unemployment
Rate
Labor-Force Participation Rate
A
120,000
60,000
4,500
B
28,000
3,000
60
C
70,000
40,000
10
High rate of unemployment in an economy negatively affects individuals, their families, and a nation as a whole since labor force is a very important productive resource. Based on this background information and the table you completed under 3a, answer the following questions.
How does the government officially measure employment and unemployment in the economy? Why is it usually stated that the official unemployment rate likely underestimates the actual level of unemployment in the economy?
Based on the table under 3a, describe the relationship between employment and economic well-being in the economy for each country. What are the impacts of labor force utilization and high unemployment rate on the national economy of country A, B, and C?
Section 4: Changes in the Real GDP per Capita
The following table indicates the U.S. real GDP data to answer the following questions.
Year
Real GDP (2000 prices) (in millions)
Population
(in millions)
1987
$6,435,000
243
2005
$11,092,000
296.6
What is the Real GDP per person in 1987?
What is the Real GDP per person in 2005?
What is the percent change in Real GDP per person between 1987 and 2005?
Section 5: Application of the Macroeconomic Aggregates
Now that you have segmented the components of macroeconomic aggregates, you must explain their implications on the national economy. Provide examples based on your answers above and explain how CPI affects consumers, how CPI affects price, the effects of employment and unemployment on the U.S. economy, and how the changes in living standards could affect employees and the national economy.
Minimum Submission Requirements
This Assessment should be completed in this template.
Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your paper should be highly organized, logical, and focused.
Your paper must be written in Standard English and demonstrate exceptional content, organization, style, grammar, and mechanics.
Your paper should provide a clearly established and sustained viewpoint and purpose.
Your writing should be well ordered, logical and unified, as well as original and insightful.
A separate page at the end of your paper should contain a list of references, in APA 6th edition format. Use your textbook, the Library, and the internet for research.
Be sure to cite both in-text and reference list citations were appropriate and reference all sources. Your sources and content should follow proper APA 6th edition citation style. Review the APA formatting and citation style found in the Academic Success Center. (It should be in Times New Roman 12-point font, include correct citations, Standard English with no spelling or punctuation errors, and correct references at the bottom of the last page.)
