Posted: May 24th, 2016

Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique.

. Suppose an economy has only three goods, and the typical family purchases the amounts given in the following table. If 2005 is the base year, then, what is the CPI for 2012? Show all working out.
Product
Quantity (2005)
Price (2005)
Expenditures (2005)
Price (2012)
Expenditures (on base year quantities) (2012) Computers 1 00 00 00 00 Books 10 0 0 Burgers 50 Computers 1 $1700 $1700 $1200 $1200 Books 10 $25 $250 $30 $300 Burgers 50 $1.00 $50 $2.00 $100 Total   $2000  $1600
2. Explain how the CPI is constructed, and discuss any weaknesses with this measurement technique.
3. What type of consumer good is most affected by the business cycle—durable goods or non-durable goods? Why?
4. Explain what happens to inflation and unemployment during the business cycle.
5. Explain the three reasons the aggregate demand curve slopes downwar