Question 1. Construct the index of average weekly earnings of Australian male employees for the period 1990-1998, using the data in the following table. Use 1990 as the base year.
Average weekly earnings of Australian 2. male employees, 1990-98
|
Year
|
Average earnings ($)
|
|
1990
|
542.30
|
|
1991
|
574.10
|
|
1992
|
590.35
|
|
1993
|
605.23
|
|
1994
|
621.95
|
|
1995
|
645.10
|
|
1996
|
664.28
|
|
1997
|
682.35
|
|
1998
|
708.30
|
Source: Australian Bureau of Statistics, Australian Economic Indicators, ABS Cat. No. 1350.0, ABS, Canberra.
For each year (with 1990 as the base year), calculate the index for the variable Earnings (E).
Question 2. A cake recipe calls for the following ingredients. The price of each ingredient in 1995 and in 2009 in Melbourne are also given below.
|
Ingredient
|
Price in 1995 ($)
|
Price in 2000 ($)
|
|
Butter (per 500g)
|
1.60
|
3.40
|
|
Suger (per 2kg)
|
1.35
|
2.33
|
|
Flour (per kg)
|
1.19
|
1.86
|
|
Eggs (per dozen)
|
2.19
|
4.62
|
Calculate a simple aggregate price index and an average of relative price index for the year 2009, taking 1995 as the base year.
Question 3. Apparent consumption and average meat prices in Sydney in 1988, 2001 and 2005 are summarized in the following table.
| Price per kg |
|
Per capita annual consumption (kg)
|
|
|
1988
|
2001
|
2005
|
1988
|
2001
|
2005
|
|
Beef (rumpsteak)
|
8.99
|
13.00
|
18.00
|
38.3
|
34.9
|
33.0
|
|
Lamb (leg)
|
4.61
|
6.60
|
9.00
|
14.9
|
11.8
|
10.8
|
|
Pork (leg)
|
5.16
|
6.10
|
7.00
|
17.5
|
19.0
|
20.0
|
|
Chicken (frozen)
|
2.59
|
3.20
|
4.00
|
24.3
|
30.8
|
30.8
|
a. Using 1988 as the base year, calculate the following price indices for Sydney meat prices in 2001 and 2005:
i. An average of relative prices index.
ii. A Laspeyres index.
iii. A Paasche index.
b. What conclusions can you draw from the results in part (a)?
c. Values for the Australian CPI for 1988, 2001 and 2005 are, respectively, 85.9, 132.2 and 147.0. Deflate the meat price indices using the CPI. Have Sydney meat prices risen more quickly or less quickly than the general level of prices in the economy?
Question 4. The Australian CPI is a Laspeyres price index. What does it mean to say that a price index is a "Laspeyres price index"?
Question 5. In a period when all prices are rising (albeit at different rates) and nominal (money) incomes are constant, will the CPI (being a Laspeyres price index with ‘old' expenditure weights) tend to overstate or understate the fall in real incomes?
HINT: Recall what a Laspeyres index is and imagine all products are more or less substitutable from the point of view of the consumer. Given that product prices are rising at different rates, what will happen to expenditure patterns over time? Will they remain unchanged? Will more weight be given now to those products whose prices are rising fastest or those whose price is rising slowest? So will we be overstating or understating the rate of increase in the general price level? So will we be overstating or understating the fall in real incomes?