HmW 2_202_ONLINE (1)

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ECON-202

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Economics

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Feb 20, 2024

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1 ECON 202_ONLINE Homework #2 50 points FIRST AND LAST NAME_______________________________________________________ CRN______________________________________ 1) Consider an economy that produces three products: fish tacos, wine and baseball hats. The cost of market basket in 2012 was $56,240. The cost of market basket in 2014 was $61,225. The cost of market basket in 2016 was $69,217.5. Consider 2012 as the base year for all of your CPI calculations. a) Calculate CPI in 2014. Show your calculations . Round the answers to 2 decimal points . Show the unit of account of your answers. Answer: (4 points) 61225*100/56240 108.86 is the CPI in 2014 b) Calculate CPI in 2016. Show your calculations . Round the answers to 2 decimal points . Show the unit of account of your answers. Answer: (4 points) 69217.5*100/56240 123.08 is the CPI in 2016 c) Calculate inflation rate between 2014 and 2016. Show your calculations . Round the answers to 2 decimal points . Show the unit of account of your answers. Answer: (4 points) (123.08-108.86)*100/108.86 13.05% is the inflation rate between 2014 and 2016 2) Suppose inflation rate goes up . Indicate whether each of the following market agents will be helped, hurt or unaffected by this (circle or highlight the correct answer ) Answer: (7 points) a) Jonah who keeps a large stash of cash in his safe Helped Hurt Unaffected b) Macy’s store has large amounts of cash on hand Helped Hurt Unaffected c) A teacher Samantha whose wage is indexed

2 Helped Hurt Unaffected d) A retiree Queen who is living on a fixed pension Helped Hurt Unaffected e) A commercial bank PNC lending money at a fixed rate of interest Helped Hurt Unaffected f) Sigmund buying a house using a fixed-rate mortgage Helped Hurt Unaffected g) A Walmart manager Eduardo who is not going to get a pay rise for another 9.5 months Helped Hurt Unaffected 3) In 2014, Yosemite Sam’s nominal salary was $73,000. CPI in 2014 was 1.09. CPI in 2016 was 1.21. Show your calculations. Round the answers to 2 decimal points. Show the unit of account of your answers. What was his real salary in 2014 ? Answer: (5.5 points) 73,000/1.09 66972.48 is the real salary in 2014 4) Will a decrease in the oil prices have an impact on the U.S. core inflation rate ? Why or why no t? Answer: (circle or highlight the correct answer ) (2 points) Yes No Explain why : ( 2 points) A decrease in oil prices may have an impact on the U.S inflation rate. This is because core infla- tion doesn’t include items like food and energy but is significant when it comes to other sectors of the economy. If you lower the oil prices, production costs for many businesses will reduce which could result in a lower price for various goods. 5) Will a decrease in the oil prices have an impact on the U.S. expected inflation rate ? Why or why not ? Answer: (circle or highlight the correct answer ) (2 points) Yes No

3 A decrease in oil prices can have an impact on the expected inflation rate because oil prices have an influence on the CPI. The decrease of oil prices would lead to a reduction in energy costs for consumers which affect the overall CPI. 6a) Will a decrease in the oil prices have an impact on the U.S. real interest rate if the nominal interest rate doesn’t change? Answer: (2 points) Yes No (circle the correct answer ) b) As a result of lower oil prices, the real interest rate will: Circle the correct answer (2 points) Hint : use real interest rate equation Increase Decrease Remain the same 7) Categorize each of the following people as employed, unemployed, discouraged, or out of the labor force for other reasons. Answer: (5.5 points) a) A husband Jake who willingly stays at home with children full time, while his wife Sarah works, is out of the labor force for other reasons. b) A manufacturing worker Pete who lost job because his factory has closed down a few days ago and who has started looking for a new job is unemployed He lost his job and is actively looking for a new job. c) A college student Jordan doing an unpaid summer internship is employed. d) A retiree Michelle is out of the labor force for other reasons _ e) Christine who has been without job for 2 years, but keeps looking for it is unemployed f) Steven who has been without job for 2 months but is not looking for a job any more is discouraged. He stopped looking after losing his job. g) Greg who hates his current janitor job and is actively looking for another job is employed . 8) Suppose a country has a population of 200 mln, 60% of which are of the working-age. 80 mln people are employed, 5 mln are unemployed and the rest of the working age population is out of the labor force. Use this information to answer the questions below. For all questions, show your calculations and the unit of account of your answer . Round all answers to 2 decimal points. a) What is the number of the working-age people in this country?

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4 Answer: (2 points) 200* 60%(.06)= 120 120million people b) What is the unemployment rate in this country? Answer: (3 points) (5/85)100= 5.88% c) What is the employment rate in this country? Answer: (2 points) (80/85)100= 94.12% d) What is the labor force participation rate in this country? Answer: (3 points) (85/120)100 = 70.83%

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