ECO
155
Fall
1999
Instructions: Answer all of the following questions. Be sure to complete each part of every
question. When you turn in your
homework, this handout must be used as a
cover sheet. Place this sheet
behind your answers, staple them all together, fold them all lengthwise and write your name and row number on the back
of this sheet.
Note: Links used for the internet
questions can be found on your course webpage.
1.
Use
the table below to answer the following questions.
Income |
Marginal Tax Rate |
$0
- $10,000 |
10% |
$10,000
- $ 30,000 |
20% |
$30,000
and above |
50% |
¨
If
you earned $50,000 per year, how much tax would you owe on the first dollar you
earned?
¨ $0.10
¨
How
much tax would you owe on the last dollar you earned?
¨ $0.50
¨
What
would your average tax rate be?
¨ $1000 + $4000 + $10,000 = $15,000
¨ ($15,000/$50,000)
* 100 = 30%
2.
Which
type of unemployment is most relevant to macroeconomics? Cyclical
Which type is not necessarily bad? Frictional—small
amounts are useful
3.
Abe
Lincoln earned $25,000 per year as president.
Bill Clinton earns $200,000. The
CPI (base year: 1982-4) was 9 in 1863 and was 159.1 in 1997.
¨
Calculate
the real income (in 1982-4 dollars) of each president.
¨ Nominal Incomeyear
T * CPIbase/CPIyear T = Real Income
¨ Lincoln:
$25,000 * 100/9 = $25,000 * 11.11 = $277,777.78 (Inflation
made the cost of living increase more than eleven fold between 1863 and 1982;
To maintain the purchasing power of Lincoln’s salary, it would have to increase
more than eleven fold too.)
¨ Clinton:
$200,000 * 100/159.1 = $200,000 * .63 =
$125,707.10 ($200,000 in 1997 is only worth 63% of what it was in 1982)
¨
Which
president enjoyed the highest salary?
¨ In real terms,
Lincoln had the higher salary.
¨
Can
you covert Lincoln’s income to 1997 dollars?
¨ Between 1982
& 1997, there was inflation of 59.1%.
We need to increase the answer we got above (Lincolns salary in 1982
terms) by this same proportion. $277,777.78 * 159.1/100 = $441,944.45
4.
If
the CPI was 148 a year ago and is 160 today, what was the inflation rate over
the past year?
¨ Percentage
Increase = [(New CPI – Old CPI)/Old
CPI] *100
¨ [(160-148)/148]
* 100 = 12/48 *100 = 8.1%
5.
Go
to: http://stats.bls.gov/cps_htgm.htm
¨
How
many households are part of the sample that the BLS surveys each month to
estimate unemployment? 60,000
¨
If
the BLS, as part of their survey interviews you, and you answer “yes” to the
first question but “no” to the second
and third questions, what will their next question be? “LAST WEEK, (in
addition to the business,) did you have a job either full or part time? Include
any job from which you were temporarily absent.”
6.
Go
to: http://stats.bls.gov/eag.table.html
¨
What
was the unemployment rate for September? 4.2 What was it in September the year before? 4.5
¨
What
was the percentage change in the PPI in
August 1998? –0.3
¨
What
was the percentage change in the CPI for May and June of this year? 0.0, 0.0
7.
Go
to: http://stats.bls.gov/cpifact8.htm
¨
The
CPI is reported monthly. However, it
takes a while for the data to be collected and the index to be
constructed. How long does this process
take? About
two weeks.
¨
How
many different indexes does the BLS publish every month as part of their CPI
information? Thousands
¨
How
many regions does the BLS publish statistics for? 4 How many population classes?
3
¨
List
the eight major groups of goods & services that make up the market basket
for the CPI.
¨ Food and
beverages, Housing (rent of primary residence, fuel oil, bedroom furniture);
¨ Apparel (men’s
shirts and sweaters, women’s dresses, jewelry);
¨ Transportation
(new vehicles, gasoline, tires, airline fares);
¨ Medical care
(prescription drugs and medical supplies, physicians’ services, eyeglasses and
eye care, hospital services);
¨ Recreation
(television sets, cable TV, pets and pet products, sports equipment,
admissions);
¨ Education and
communication (college tuition, postage, telephone services, computer software
and accessories);
¨ Other goods
and services (tobacco and smoking products, haircuts and other personal care
services, funeral expenses).
¨
What
is the difference between the CPI-U & the CPI-W?
“For each published CPI data series, two separate indexes are
available: All Urban Consumers (CPI-U) and Urban Wage Earners and Clerical
Workers (CPI-W). Both the CPI-U and the CPI-W reflect only the buying habits of
urban consumers. The CPI-U is the most comprehensive of the two and represents
the expenditures by all urban consumers, about 87 percent of the total U.S.
population.”
8.
Go
to: http://stats.bls.gov/news.release/cpi.t01.htm
¨
What
was the Relative importance of food & beverages in the CPI-U in December
1998? 16.408%
¨
What
was the relative importance of apparel? 4.831
¨
If
both men’s and women’s apparel increased in price by 10%, which would have the
greater impact on the CPI? Why? Women’s. It is weighed more heavily in the CPI goods
basket.