Price Inflation Problems and Solutions

# Price Inflation Problems and Solutions - ECON 402 Spring...

• Homework Help
• 2

This preview shows page 1 - 2 out of 2 pages.

ECON 402 – Spring 2014 Candidate Answers Homework #2 1. Here are some actual prices of goods in past years, recorded in November of the indicated year: (i) Men’s sport coat, \$22.85 in 1960; (ii) Coffee (2 lbs.), \$1.09 in 1965; (iii) Ford sedan (Galaxie), \$3,939 in 1972; (iv) Reclining chair, \$299 in 1981; Washing machine, \$349 in 1988. What are their prices in November 2013 constant dollars, using CPI-U as the price index? i. Men’s sport coat -- \$22.85 in 1960 Nov. 2013 CPI = 233.887; Nov. 1960 CPI = 29.780 (233.887/29.780)* \$22.85 = \$179.46 ii. Coffee (2lbs.) -- \$1.09 in 1965 Nov. 2013 CPI = 233.887; Nov. 1965 CPI = 31.750 (233.887/31.750)* \$1.09 = \$8.03 iii. Ford Sedan (Galaxie) -- \$3,939 in 1972 Nov. 2013 CPI = 233.887; Nov. 1972 CPI = 42.400 (233.887/42.400)* \$3,939 = \$21,728.32 iv. Reclining Chair -- \$299 in 1981 Nov. 2013 CPI = 233.887; Nov. 1981 CPI = 93.800 (233.887/93.800)* \$299 = \$745.55 v. Washing Machine -- \$349 in 1988 Nov. 2013 CPI = 233.887; Nov. 1988 CPI = 120.300 (233.887/120.300)* \$349 = \$678.53 2. Over the past five months, the civilian unemployment rate (U3 rate) has declined from 7.2% to 6.7%. Does this necessarily indicate an improvement in the U.S. employment situation? There are a number of shortcomings of the U-3 unemployment rate as a measure of the “true” state of the labor market in the U.S. Among them, it doesn’t reflect individuals who

Subscribe to view the full document.

{[ snackBarMessage ]}

###### "Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern