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##### ECON1000 Open Campus Worksheet #5 (Covers Units 9 and 10)

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Question;ECON1000 Open Campus;Worksheet #5 (Covers;Units 9 and 10) ? worth 3%;Question 1;(15 marks);A;household survey concludes that the typical person consumes: 100 units of good;X, 150 units of good Y and 25 units of good Z. The information for prices of good;X, Y and Z are given below;Good;Quantity;Prices 2000;Prices 2001;Prices 2002;Consumed;X;100;\$1.00;\$1.50;\$1.75;Y;150;1.50;2.00;2.00;Z;25;3.00;3.25;3.00;If the;year 2000, is the predetermined base year;a);Calculate the CPI;for 2001 and 2002.;(4 marks);b);Calculate the;inflation rate in 2002.;(2 marks);c);Identify TWO;problems using the CPI as a measure of the cost of living.;(2 marks);d);Provide;an example for each of the TWO problems in part c.;(3 marks);e);Differentiate;between the CPI and the GDP deflator as a measure of the standard;of living.;(4 marks);Question 2;(15 marks);Draw;diagrams illustrating the impact on the money demand, money supply, equilibrium;interest rate and the quantity of money due to each of the following;a);The;changes in bank regulations expand the availability of credit cards so people;need to hold less;cash.;(5 marks);b);During a period of;rapid inflation the central bank increases the reserve;requirement.;(5 marks);c);The;economy recently experienced an increase in the number of tourist arrivals;increasing income;throughout the island.;(5 marks);Question;3 (12 marks);Determine;which account of the Balance-of-Payments is affected by each of the following;transactions. (E.g. Current Account ? Transfers);a);A local firm ships US\$80 million of;merchandise to China;b);National Commercial Bank, a;local company, pays US\$1 million in dividends to foreign shareholders.;c);A German company builds a manufacturing;facility in your country.;d);A local resident purchases a retirement condo;in Florida for US\$10 million;e);You travel to the United States for holiday;and spend US\$500;f);You invest in the South Korean stock market;by buying US\$500 in stock;Question 4;(8 marks);a) Consider;three countries Hungary, Mexico and the U.S. which sell identical t-shirts. If;the price of the t-shirt is 500 forint, 20 pesos and US\$2. Calculate The;purchasing power parity exchange rate between;i);Mexico and the U.S.;(2;marks);ii);Hungary and the;U.S.;(2;marks);b) Suppose;the current exchange rate between the Mexican peso and the U.S. dollar is 12;peso = US\$1 and the exchange rate between the Hungarian forint and the U.S.;dollar is 215 forint = US\$1. Based on the PPP calculations is part a, what do;you expect to happen;to the exchange rate between;i);Mexico and the U.S.;(2;marks);ii);Hungary and the;U.S.;(2;marks);TOTAL MARKS = 50

Paper#55464 | Written in 18-Jul-2015

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