UNIT 5 ASSIGNMENT
Unit 5 Assignment
In this Assignment, you will deal with how to measure the cost of living and rate
of unemployment in the 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 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.
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 per Unit
2004 price per unit
2005 price per unit
a. Compute the percentage changes in the price of food and the percentage change in the
price of clothing between 2004 and 2005.