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1. (6.5 points) The table below shows prices for fruit that the typical college student 4. purchased from 2001 to 2004. Use the table to
1. (6.5 points) The table below shows prices for fruit that the typical college student 4. purchased from 2001 to 2004. Use the table to answer parts a. through c. below. Items, quantities, and prices for fruit purchases a. Fill in the missing values in the table by calculating the amounts spent each year on the different types that make up the "basket" of fruit based on the quantities shown in the second column. Then calculate the total spent in each year and fill in your answers in the final row of the table. b. Construct the price index for the "fruit basket" in each year, using 2001 as the base year. Fill your index values into the table below. Price index, by year, 2001 to 2004 c. Using the information you found, what is the inflation rate over the period of time beginning in 2001 and ending in 2004? 2. (1 point) Briefly describe one reason why the inflation rate for new computer hard drives from 2003 to 2023 may not have perfectly captured the rising price for new computer hard drives during that period. 3. {2.5 points) Are the following likely to be helped or hurt by inflation? (For a. through e., just answer "helped" or "hurt.") a. a retiree living on a fixed pension of $2,100 per month, regardless of changes to inflation b. a lender who issued a loan when the GDP deflator was 120, and then receives payments from the borrower after the GDP deflator has risen to 140 c. a person who holds large percentage of their money in physical cash, stored in their home d. a borrower who took out a loan when the GDP deflator was 120, and then makes payments to the lender after the GDP deflator has risen to 140 e. a retail firm that is stuck with tens of thousands of dollars in its checking account CHAPTER 11 4. (2 points] To answer parts a. and b. below, assume electricity production (for example, burning fuel or using renewable energy to produce power) is an important input into virtually all of a society's production. a. An aggregate supply decrease would most likely result after electricity prices increased I decreased (choose one of the options in bold). b. An aggregate supply increase would most likely result after electricity prices increased I decreased (choose one of the options in bold). 5. (1 point) Suppose the U5. government passes sweeping labor reforms making it easier for young people to find jobs. Assuming the U.S. economy is operating in the intermediate zone of the SRAS curve, use the ADfAS model to explain how the labor reforms would affect the U5. equilibrium level of GDP and the U.S. price level. 6. (1 point) China is one of the United States' largest trading partners and purchases a large quantity of U.S. exports. That means an economic change in lChina can impact the U.S. economy in the context of the AD/AS model. With that in mind, suppose China enters a period of rapid economic advancement, and purchases of U.S. goods by China increase substantially. Use this information to answer parts a. and b. below. a. Ceteris paribus, would this be more likely to cause a shift in U.S. aggregate demand or aggregate supply? Choose one. b. Assume the U.S. economy is operating in the intermediate zone of the SRAS curve. After the shift you chose in part a., what will be the impact on both the U.S. equilibrium GDP and the U.S. price level? 7. (2 points] Matching: for the ADIAS model, pair each description on the left with the correct answer on the right. Descriptions and answers Description a. An increase in aggregate demand occurring in the area of the SRAS 1. long-run curve near potential GDP illustrates _____ . economic growth . . . 2. a short run dip b. A gradual shift to the right of aggregate supply Illustrates _____ . into recession c. An equilibrium level of real GDP that is substantially below potential 3. the natural rate GDP illustrates . of unemployment 4. inflationary price d. The level of potential GDP indirectly, yet implicitly, illustrates _____ . pressure 8. (2 points) Suppose the economy is operating in the fully vertical part of the neoclassical zone of the SRAS curve. Suddenly, aggregate demand decreases but the economy remains in the fully vertical part of the neoclassical zone of the SRAS curve. As a result: a. Prices will increase I decrease I remain unchanged (choose one of the options in bold). b. Real GDP will increase I decrease I remain unchanged (choose one of the options in bold]. 9. (2 points] Suppose the economy is operating in the fully horizontal part of the Keynesian zone of the SRAS curve. Suddenly, aggregate demand decreases but the economy remains in the fully horizontal part of the Keynesian zone of the SRAS curve. As a result: a. Prices will increase I decrease I remain unchanged (choose one of the options in bold). b. Real GDP will increase I decrease I remain unchanged (choose one of the options in bold)
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