Unemployment

Types of Unemployment

6 Concepts | 1 Practice Exercise Unemployment Measures

1 Concept | 1 Practice Exercise Okun’s Law

2 Concepts | 1 Practice Exercise Misery Index

2 Concepts | 1 Practice Exercise Economic Measures

Consumer Price Index (CPI)

3 Concepts | 1 Practice Exercise Gross Domestic Product (GDP)

5 Concepts | 2 Practice Exercises Gross National Product (GNP)

2 Concepts | 1 Practice Exercise Potential Output

1 Concept | 1 Practice Exercise Money Supply

3 Concepts | 2 Practice Exercises Stock vs. Flow

2 Concepts | 1 Practice Exercise Standard of Living

1 Practice Exercise Economic Models

Supply & Demand

7 Concepts | 1 Practice Exercise Aggregate Supply & Aggregate Demand

2 Concepts | 1 Practice Exercise Economic Gaps

2 Concepts | 1 Practice Exercise Interest Rates

Interest Rates

3 Concepts | 1 Practice Exercise Loanable Funds

3 Concepts | 1 Practice Exercise Comprehensive

Bringing it all together

1 Practice Exercise **Question:** Calculate the CPI based on the following table.

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

To compute the cost of each basket (of goods X and Y) in the current year and base year...

...we'll use the following formula:

Remember: we want to take quantities from the *survey year*, not from today or base year.

The **Quantity** of x and y is always taken from the **survey year** (this is to ensure we have the same basket of goods we are comparing every year).

Therefore, we'll plug in 10 for Q_{x}...

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

...and 5 for Q_{y}.

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

The price for pencils (P_{x}) today is $6...

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

...and the price for notebooks (P_{y}) today is $12.

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

The **prices** of x and y in the **numerator** are based on **today's** prices.

The price for pencils (P_{x}) in the base year was $4...

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

...and the price for notebooks (P_{y}) in the base year is $8.

Survey Year | Base Year | This Year | |
---|---|---|---|

P_{x} | $3 | $4 | $6 |

P_{y} | $6 | $8 | $12 |

Q_{x} | 10 | 8 | 12 |

Q_{y} | 5 | 6 | 10 |

The **prices** of x and y in the **denominator** are based on the **base year's** prices.

From here, we can solve for a CPI of 150!