Macroeconomics Assignment 6
(This assignment is worth 50 points)

(1-6 are worth 7 points each. #7 is worth 8 points)

1. What is the CPI? What does the CPI measure?

2. Which do you think has a greater effect on the CPI: a 10% increase in the price of chicken or a 10% increase in the price of caviar? Why?

3. Which do you think has a greater effect on the CPI: a 10% increase in the price of fish or a 10% increase in the price of a new fighter jet? Why?

4. Suppose your grandfather graduated from Arkansas Tech University in 1969 and accepted a new job paying $7,000/year. Using the Bureau of Labor Statistics website calculator at http://www.bls.gov/data/inflation_calculator.htm, what is the value of that salary in 2016 dollars?

5. Over a long period of time, the price of a candy bar rose from $0.20 to $1.20. Over the same period, the consumer price index rose from 150 to 300. Adjusted for overall inflation, how much did the price of the candy bar change?

6. Suppose you graduated from Arkansas Tech University and got your dream job. You started on January 1, 2016. Congratulations! After 1 year, your supervisor called you into her office for your annual evaluation and salary review. She congratulates you on being a wonderful employee and tells you your annual salary will be increased from $42,000 to $42,630. She says, “you are getting a good raise”. You really like your supervisor, but you wonder whether or not you have been given a ‘good raise’. So, you access the bls.gov website, https://www.bls.gov/cpi/cpid1612.pdf, and find that the CPI, from Dec. 2015 to Dec. 2016 has increased. Did you get a ‘good raise’ compared to the increase in CPI? Why or why not? Show your calculation to support your answer.

7. What is the PPI? What does the PPI measure?