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class_feb25

# class_feb25 - Introduction to Macroeconomics Class-work 1...

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1 Introduction to Macroeconomics February 25, 2010 Class-work 1. The following table shows the prices and quantities consumed in the country Fredon. Suppose the base year is 1999. This is the year the typical consumption basket was determined so that quantities consumed during 1999 are the only quantities needed to calculate the CPI in every year. Year Price of books Quantity of books Price of Pencils Quantity Of Pencils Price of Pens Quantity Of Pens 1999 \$50 10 \$1 100 \$5 100 2000 \$50 12 \$1 200 \$10 50 2001 \$60 12 \$1.50 250 \$20 20 a. What is the value of the CPI in 1999? b. What is the value of the CPI in 2000? c. What is the value of the CPI in 2001? d. What is the inflation rate in 2000? e. What is the inflation rate in 2001? f. What type of bias do you observe in the CPI and the corresponding inflation rates you generated above? g. If you had a wage contract indexed to inflation calculation based on the CPI calculated above, would your standard of living increased, decreased, or stayed the same over the years 1999-2001? Why?

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