Homework # 1 Part 1: Short Answer Questions 1. In Mundo there are 30 million people who are employed and 2.

5 million that are unemployed, and 1.2 million of the employed are working part time, half of whom would like to work full time. Compute the following: Labour force: Unemployment Rate: 2. Mrs. Garcia, a prominent economist in Mundo, noticed that the consumer price index in year 1 was 145 and year 2 it became 178, what is the rate of inflation: 3. On May 27, 2006 it was recorded that the nominal interest rate in Mundo was 5.68% and the inflation rate was 3%. What was the real interest rate in Mundo for that period? The next two questions are based on the table below: Real GDP Year Actual Potential 2003 1168 1188 2004 1225 1225 2005 1255 1245 4. Compute Output gap for each year 5. What does it mean that actual GDP is above/equal/below potential? Year Actual Potential Output Gap Part 2: Problem Be careful it is a question with a trick, there is lots of information that is not necessary. You are onlyrequired to calculate CPI2011 , CPI 2012 and Inflation Rate. An average consumer in the economy of Mundo purchased the following basket of goods**: 2011 2012 Quantity Price Total Quantity Price Total Expenditure Expenditure Chocolate 15 $2.50 14 $2.89 Cherries 190 $5.00 278 $6.70 Total Calculate CPI for 2011 and 2012 taking into consideration the fact that the base year was 2009 where the typical basket of goods was: Chocolate 10 @ $1.50 Cherries 120 @ $3.00 Calculate Inflation Rate for the period of 2011 and 2012:

Output Gap

** NO NEED TO COMPUTE TOTAL EXPENDITURE IN THE TABLE SINCE THIS INFORMATION IS NOT REQUIRED. You only need prices from the table