Question 1 The table below shows prices for fruit that the typical college student purchased from 2001 to 2004. Use the table to answer parts a. through c. below.

Items	Qty	(2001) Price	(2001) Amount Spent	(2002) Price	(2002) Amount Spent	(2003) Price	(2003) Amount Spent	(2004) Price	(2004) Amount Spent
Apples	10	$0.40		$0.45		$0.65		$0.70
Bananas	4	$0.20		$0.30		$0.30		$0.40
Grapes	2	$0.65		$0.70		$0.90		$0.95
Raspberries	20	$0.19		$0.17		$0.17		$0.22
Total	---	---		---		---		---

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.

2001	2002	2003	2004

c. Using the information you found, what is the inflation rate from2001 to 2004?

Question 2.Can you identify one reason that the inflation rate for new high definition televisions may not perfectly capture the rising price of newhigh definition televisions?

Question 3. Are the following likely to be helped or hurt by inflation? (For a. through e., just answer "helped" or "hurt.")

a.a lender who issued a loan before the inflation occurred

b.a person who holds large percentage of their money in savings

c.a retail firm that is stuck holding too much cash

d.a retiree living on a fixed pension of $1,200 per month, regardless of changes to inflation

e.a borrower who took out a loan before the inflation occurred

Question 4. To answer parts a. and b. below, assume electricity production (i.e., burning fuel or using renewable energy to produce power) is an important input into a society's production.

a. A decrease in electricity prices would result in an aggregate supply increase/decrease (choose one).

b. An increase in electricity prices would result in an aggregate supply increase/decrease (choose one).

Question 5 Suppose Mexico, one of the United States' largest trading partners and a purchaser of a large quantity of U.S. exports, enters a period of rapid economicadvancementandincreased purchasing. Use the AD/AS model to determine the likely impact on U.S. equilibrium GDP and price level.

Question 6 Suppose the U.S. government passes sweeping labor reforms making it more difficult for young people to find jobs. Use the AD/AS model to explain how this would affect the equilibrium level of GDP and the price level.

Question 7.

a.How is the natural rate of unemployment show on the graph of the AD/AS model?

b.How is long-term growth show on the graph of the AD/AS model?

c.How is pressure for inflationary price increases shown on the graph of the AD/AS model?

d. How is a recession shown on the graph of the AD/AS model?

Question 8. Suppose the economy is operating in the horizontal part of the Keynesian zone of the SRAS curve. Suddenly, aggregate demanddecreasesbut the economy remains in the horizontal part of the Keynesian zone of the SRAS curve. As a result:

a. Prices willremain unchanged/increase(choose one of the options in bold).

b. Real GDP willremain unchanged/increase(choose one of the options in bold).

Question 9. Suppose the economy is operating in the vertical part of the neoclassical zone of the SRAS curve. Suddenly, aggregate demanddecreasesbut the economy remains in the vertical part of the neoclassical zone of the SRAS curve. As a result:

a. Prices willremain unchanged/increase(choose one of the options in bold).

b. Real GDP willremain unchanged/increase(choose one of the options in bold).

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