NAME EMAIL ECON 104 5 Spring 2015 Date Due Thurs March 19 HOMEWORK 3 This assignment 24 points is due at the beginning of class on Thursday March 19 After the assignment is collected we will go over it You can work together however you are expected to write up your answers individually If you cannot make it to class on 3 19 send your homework with a friend or turn it in early during office hours with your name and section time clearly marked Note We will not accept assignments that are sent via email No late assignments will be accepted 1 Please review your packet notes pages 59 102 readings that correspond to your packet notes text chapters 9 and 10 relevant pages are indicated in the packet and Section III of your packet pages 186 189 and 196 208 2 5 points Consumers in the Northland economy consume three goods spears longboats and shields The prices of each of these goods over the last 3 years have been The Economy of Northland 2012 2013 2014 Price Price Price Spears 10 12 14 Long Boats 200 220 220 Shields 15 15 17 a If the average household basket contains 20 spears 1 longboat and 30 shields per year and the base year is 2013 find Northland s CPI for 2012 2013 and 2014 Use a calculator and show your work in the space provided below Year Spears P Q Longboats P Q Shields P Q Cost of Basket CPI 2012 2013 2014 b Using your table above calculate the rate of inflation for 2013 and 2014 Use a calculator and show your work below 2013 2014 3 3 points Professor Bell s earnings for 1970 1980 and 1990 along with the CPI for each year are shown in the table below Please calculate her real income for each year Use a calculator and show your work in the space provided Year Salary CPI 1970 12 000 40 1980 24 000 60 1990 36 000 100 Real Income In real terms the Professor s income was the highest in 19 and the lowest in 19 4 5 points At the end of 2001 Stan borrowed 1 000 from PNC bank for one year at the nominal interest rate of 10 Suppose the price level went up by 15 during 2002 a Assuming the base year is 2001 what is the CPI for 2002 Hint Write down the formula for calculating the rate of inflation for 2002 Fill in the CPI for 2001 and solve for the CPI for 2002 b Using the CPI for 2002 calculate the real value of Stan s repayment principal plus interest to PNC bank Use a calculator and show your work below c Stan s repayment gave PNC bank more less circle one purchasing power than it originally loaned him 5 6 points Please go to the class Web site in ANGEL and read U S Adds Jobs at Steady Clip article dated 3 6 15 see Articles folder Please fill in the blank or circle the correct answer New Jobs The number of new jobs created in February was This number was greater less circle one than expectations of economists that were surveyed Hiring was strong weak circle one across most industries Unemployment The unemployment rate rose fell circle one to percent while the U6 unemployment rate rose fell circle one to percent in February Wages Participation Rate Slack remains in the labor market wages were up only percent The labor force participation rate fell rose circle one to percent in February from January The figure is near the highest lowest circle one level since the late 1970s Federal Reserve s Janet Yellen commented cyclical strength weakness circle one persists 6 5 points Draw a graph that illustrates employment peaks and troughs use horizontal tangent lines as we did in class relative to RGDP peaks and troughs P RDGP T RDGP Employment Time Employment is a procyclical countercyclical circle one and leading coincident lagging circle one indicator of the real GDP cycle Given that the total jobs created over the past three months was 329 000 in December 239 000 in January and in February Chairwomen Yellen s comment see previous page and the positive negative circle one real GDP growth in 2014 see article in class web site the U S economy is currently in the expansionary recessionary circle one phase of the the real GDP business cycle