BU204M2.docx - [BU204M2] Assessment Template In this...

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[BU204M2] Assessment TemplateIn this Assessment, you will deal with how to measure the cost of living and rate of unemployment inthe economy.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 ratesfor 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 thestandard of living. Economists measure the performance of the labor market using unemploymentstatistics.DirectionsThis Assessment requires a combination of short paragraph answers, computations, and completionof a 450–500 word essay.Answer the following questions to explain the cost of living and unemployment issues in the economy.Section 1: Consumer Price IndexAssume 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 offood and 20 units of clothing.Yearly Price per UnitFoodClothing2004 price per unit$8$202005 price per unit$12$40a.Compute the percentage changes in the price of food and the percentage change in the price ofclothing between 2004 and 2005.
b.Calculate the percentage change in the CPI between 2004 and 2005.
c.Do you think the CPI price changes affect all consumers in the economy to the same extent? Ifnot, how do you determine who “wins” and who “loses” in this particular situation? Explain.

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Term
Spring
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