1. The small economy of Pizzania produces three goods (bread, cheese, and pizza), each produced by a separate company. The bread and cheese companies produce all the inputs they need to make bread and cheese, respectively. The pizza company uses the bread and cheese from the other companies to make its pizzas. All three companies employ labor to help produce their goods, and the difference between the value of goods sold and the sum of labor and input costs is the firm’s profit. The accompanying table summarizes the activities of the three companies when all the bread and cheese produced are sold to the pizza company as inputs in the production of pizzas.

2. In the economy of Pizzania (from Problem 1), bread and cheese produced are sold both to the pizza company for inputs in the production of pizzas and to consumers as final goods. The accompanying table summarizes the activities of the three companies.

3. Which of the following transactions will be included in GDP for the United States?

4. The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2005 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2010. The U.S. price level rose consistently over the period 1960–2010.

5. Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department’s star student, to create an index of textbook prices. The average student purchases three English, two math, and four economics textbooks per year. The prices of these books are given in the accompanying table.

6. The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so on) times a measure of the importance of that expenditure in the average consumer’s market basket and summing over all categories. However, using data from the consumer price index, we can see that changes in the cost of living for different types of consumers can vary a great deal. Let’s compare the cost of living for a hypothetical retired person and a hypothetical college student. Let’s assume that the market basket of a retired person is allocated in the following way: 10% on housing, 15% on food, 5% on transportation, 60% on medical care, 0% on education, and 10% on recreation. The college student’s market basket is allocated as follows: 5% on housing, 15% on food, 20% on transportation, 0% on medical care, 40% on education, and 20% on recreation. The accompanying table shows the March 2014 CPI for each of the relevant categories.

Calculate the overall CPI for the retired person and for the college student by multiplying the CPI for each of the categories by the relative importance of that category to the individual and then summing each of the categories. The CPI for all items in March 2014 was 235.6. How do your calculations for a CPI for the retired person and the college student compare to the overall CPI?

7. Go to the Bureau of Labor Statistics home page at www.bls.gov. Place the cursor over the “Economic Releases” tab and then click on “Major Economic Indicators” in the drop-down menu that appears. Once on the “Major Economic Indicators” page, click on “Consumer Price Index.” On that page, under “Table of Contents,” click on “Table 1: Consumer Price Index for All Urban Consumers.” Using the “unadjusted” figures, determine what the CPI was for the previous month. How did it change from the previous month? How does the CPI compare to the same month one year ago?

8. The accompanying table provides the annual real GDP (in billions of 2009 dollars) and nominal GDP (in billions of dollars) for the United States.

9. The accompanying table contains two price indexes for the years 2011, 2012, and 2013: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2011 to 2012 and from 2012 to 2013.

10. The cost of a college education in the United States is rising at a rate faster than inflation. The following table shows the average cost of a college education in the United States during the academic year that began in 2011 and the academic year that began in 2012 for public and private colleges. Assume the costs listed in the table are the only costs experienced by the various college students in a single year.

11. The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2012, 2013, and 2014.