Reference no: EM133125789

Problem 1:                         Market Basket                  1st year              2nd year

                                                                                  Prices                   Prices

      6 lbs. Oranges                      .55                      .60      5 lbs. Bananas                      .65                      .80      1 gal. Milk                            2.25                    2.20      2 boxes Cereal                    3.50                    4.00

Calculate the CPI for the 2nd year using the 1st year as the base year. Calculate the inflation rate.

HOMEWORK  Unit SIX - Optional

PA1 According to an old myth, Native Americans sold the island of Manhattan about 400 years ago for $24.  If they had invested this amount at an interest rate of 7 percent per year, how much approximately, would they have today?

PA3 Between January 2010 and January 2013, U.S. employment increased by 4.9 million workers, but the number of unemployed workers declined by only 2.7 million.  How are these numbers consistent with each other?  Why might one expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people employed?

PA8 Suppose that people expect inflation to equal 3 percent, but in fact, prices rise by 5 percent.  Describe how this unexpectedly high inflation rate would help or hurt the following:

1. The government
2. A homeowner with a fixed-rate mortgage
3. A union worker in the second year of a labor contract
4. A college that has invested some of its endowment in government bonds