Question # 2

a) Assume that after you graduate, you move to a simple economy in which only three goods are produced and consumed: fish, fruit, and meat. Suppose that on January 1, fish sold for $2.50 per pound, meat was $3.00 per pound, and fruit was $1.50 per pound. At the end of the year, you discover that the catch was low and that fish prices had increased to $5.00 per pound, but fruit prices stayed at $1.50 per pound, and meat prices had actually fallen to $2.00. Can you say what happened to the overall CPI, in terms of whether it increased, decreased, or stayed the same? Do you have enough information to calculate the inflation rate?

b) What are the consequences of higher than anticipated inflation in the labour and financial markets?

c) What is core inflation, and how does it differ from "regular" inflation?

Question # 3

a) Briefly describe the four types of unemployment and the potential solutions.

b) Why do the employment and unemployment rates not equal one?

c) What are the problems of using unemployment to indicate economic performance?

Question # 4

a) What is the difference between Nominal and Real GDP? Why may GDP not be a good measure of economic well-being?

b) What is the difference between economic growth and economic development? Can you have one without the other?

c) Why is economic growth so slow or non-existent in many developing countries? What policies would you propose to improve the situation?