- Suppose an economy has only three goods, and the typical family purchases the amounts
given in the following table. If 2005 is the base year, then, what is the CPI for 2012? Show
all working out.
Expenditures (on base
year quantities) (2012)
Computers 1 $1700 $1700 $1200 $1200
Books 10 $25 $250 $30 $300
Burgers 50 $1.00 $50 $2.00 $100
Total $2000 $1600
- Explain how the CPI is constructed, and discuss any weaknesses with this measurement
- What type of consumer good is most affected by the business cycle—durable goods or
non-durable goods? Why?
- Explain what happens to inflation and unemployment during the business cycle.
- Explain the three reasons the aggregate demand curve slopes downward.