The consumer price index (CPI) and aggregate real output (Y) are presented as fo

Question

The consumer price index (CPI) and aggregate real output (Y) are presented as follows: What is a business cycle? Identify its phases and comment on the economic problems associated with each phase. Discuss the appropriate fiscal and monetary policy tools required to deal with each problem. (Fiscal Policy (taxes & government spending)] [Monetary Policy (money supply & interest rate)] Suppose a monopolist has two segmented markets, domestic [1) and foreign (2). The demand functions for both markets and the total cost function are as follows:

Explanation / Answer

(2)

(a) Inflation rate = % change in CPI from one year to another

1979: [(72.6 / 65.2) - 1] x 100 = [1.1135 - 1] x 100 = 0.1135 x 100 = 11.35%

1980: [(82.4 / 72.6) - 1] x 100 = [1.135 - 1] x 100 = 0.135 x 100 = 13.5%

1981: [(90.9 / 82.4) - 1] x 100 = [1.1032 - 1] x 100 = 0.1032 x 100 = 10.32%

1982: [(96.5 / 90.9) - 1] x 100 = [1.0616 - 1] x 100 = 0.0616 x 100 = 6.16%

(b)

(i) Short term growth rate = Change in Y from one year to next

1979: [590.7 / 575.2] - 1 = 1.0269 - 1 = 0.0269 or 2.69%

1980: [578.6 / 590.7] - 1 = 0.9795 - 1 = - 0.0205 or - 2.05%

1981: [570.2 / 578.6] - 1 = 0.9855 - 1 = - 0.0145 or 1.45%

1982: [581.1 / 570.2] - 1 = 1.0191 - 1 = 0.0191, or 1.91%

NOTE: The first multi-part question is answered in full.

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