What are the 4 types of Unemployment (according to the powerpoint provided in the folder)?
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Which of these types would you associate with laying off landscaping workers in the winter?
Which of these types would you associate with businesses that go out of business due to not adjusting to strong competition in the marketplace?
When there is “full employment”, what is the one type of unemployment that does not exist?
What is the “market basket” and how is it used to determine inflation?
What is the Phillips Curve and what is the relationship between its two key variables?
If you want to determine if the cost of a movie is more today than in 1992, would you look at the nominal or real value when comparing the cost of the tickets?
How is the misery index determined?
How the CPI is Calculated
Assume that there are only three goods (instead of goods and services in over 200 categories in the actual calculation) included in the typical consumer’s purchases and, in the base or the original year, the goods had prices of $10.00, $20.00, and $30.00. The typical consumer purchased ten of each good. Total cost of this ‘market basket’ in the base year was $600.00.
In the current year, the three goods’ prices are $11, $24, and $33. Consumers now purchase 12, 8, and 11 of each good. The total current price of this ‘market basket’ is $622, but this would not be an accurate way to compare the ‘price level.’ An accurate comparison has to assume a constant pattern of purchasing.
The determination of the CPI for the current year uses the quantities purchased in the market basket in the base year (ten of each good) times their prices in the current year divided by the quantities purchased in the market basket in the base year times their prices in the base year.
Thus [(10 x $11) + (10 x $24) + (10 x $33)] / [( 10 x $10) + (10 x $20) + (10 x $30)] = $680 / $600 = 1.133. That is, prices in the current year are 1.133 times the prices in the original year. Prices have increased on average by 13.3 percent. The quantities are the base year quantities in both the numerator and the denominator.
By convention, the indexes are multiplied by 100 and reported as 113.3 instead of 1.133.
The base year index simply divides the prices in the base year (times the quantities in the base year) by the prices in base year (times the quantities in the base year). The base-year index then is 1.00; or multiplied by 100 equals 100.
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