Question

Question 1 – Using CPI

Suppose you are given the following information about wages and CPI. In 1984 you were being paid $35,000 annually and then 30 years later in 2014 had a salary of $75,000. If you were told that the CPI in 1984 and 2014 were 103.9 and 236.7 respectively, which year were you being paid a greater salary? Explain.

Question 2 – Growth rate of GDP

In 1948 the US GDP was $275B. If the US had grown a growth rate of 4% annual, calculate the expected GDP it would achieve in 2015. Compare this value to the actual nominal GDP of 18.0 Tr. What can you say about the growth rate of the US over this time period given your calculation and the actual GDP measure?

Question 3 – Unemployment

Suppose that you are given that there are 25 million unemployed and 180 million people in the labor force. Also note that the working age population is 255 million.

i) Calculate the unemployment rate. What does this value tell you? Explain.

ii) How many people in the nation are actually employed? Show your work.

iii) Calculate the labor force participation rate. What does this value tell you? Explain.

Answer 1

Question 1

In order to compare the two salaries, we have to first convert the value of salary in 1984 dollars into 2014 dollars.

Salary in 1984 dollars = $35,000

CPI in 1984 = 103.9

CPI in 2014 = 236.7

Salary of 1984 in 2014 dollars = Salary in 1984 dollars * (CPI in 2014/CPI in 1984)

Salary of 1984 in 2014 dollars = $35,000 * (236.7/103.9) = $79,735.32

The salary of 1984 in 2014 dollars is $79,735.32

The salary of 2014 in 2014 dollars is $75,000

So, the greater salary was paid in 1984.