ECONOMICS22 7 MACROECONOMICS chapter: GDP and the CPI: Tracking the Macroeconomy 1. Below is a simplified circular-flow diagram for the economy of Micronia. (Note that there is no investment spending in Micronia.) a. What is the value of GDP in Micronia? b. What is the value of net exports? c. What is the value of disposable income? d. Does the total flow of money out of households—the sum of taxes paid and consumer spending—equal the total flow of money into households? e. How does the government of Micronia finance its purchases of goods and services? Government purchases of goods and services = $100 Government Taxes = $100 Households Wages, profit, interest, rent = $750 Consumer spending = $650 Factor markets Markets for goods and services Gross domestic product Wages, profit, interest, rent = $750 Firms Exports = $20 Rest of world Imports = $20 1. Solution a. We can measure GDP in Micronia as the sum of all spending on domestically produced final goods and services. Spending consists of consumer spending, government purchases of goods and services, and exports less imports, or $750 ($650 + $100 + $20 − $20). b. Net exports are exports less imports. In Micronia, net exports equal zero ($20 − $20). c. Disposable income is income received by households less taxes plus government transfers. In Micronia, disposable income equals $650 ($750 - $100). d. Yes. Consumer spending plus taxes equals $750—the same as the wages, profit, interest, and rent received by households. e. The government finances its purchases of goods and services with tax revenue. KrugWellsECPS3e_Macro_CH07.indd S-99 S-99 4/19/12 11:08 AM rent = $800 Consumer spending = $510 Factor markets Markets for goods and services Gross domestic product Wages. CHAPTER 22 2. Yes. In Macronia. interest. disposable income equals $710 ($800 . Spending consists of consumer spending. profit. Net exports are exports less imports. government purchases of goods and services. What is the value of net exports? c. Disposable income is income received by households less taxes plus government transfers. and private savings—equal the total flow of money into households? e. A more complex circular-flow diagram for the economy of Macronia is shown below. c. e. Does the total flow of money out of households—the sum of taxes paid. profit. rent. What is the value of disposable income? d.$20). The government finances $100 of its spending with tax revenue and the other $60 through borrowing in financial markets.) a.S-100 MACROECONOMICS. KrugWellsECPS3e_Macro_CH07. Consumer spending plus taxes plus private savings equals $810—the same as the wages. What is the value of GDP in Macronia? b. or $800 ($510 + $110 + $150 + $50 . interest.indd S-100 4/19/12 11:08 AM .$100 + $10). Solution a. In Macronia. rent = $800 Firms Investment spending = $110 Exports = $50 Financial markets Borrowing and stock issues by firms = $110 Foreign borrowing and sales of stock = $130 Rest of world Imports = $20 Foreign lending and purchases of stock = $100 2. We can measure GDP in Macronia as the sum of all spending on domestically produced final goods and services. net exports equal $30 ($50 .$20). and exports less imports. the government needs to finance $160 in spending ($150 on purchases of goods and services and $10 in government transfers). interest. (Note that Macronia has investment spending and financial markets. profit. investment spending. b. d. consumer spending. and government transfers received by households. In Macronia. How does the government finance its spending? Government purchases of goods and services = $150 Government borrowing = $60 Government Taxes = $100 Government transfers = $10 Private savings = $200 Households Wages. CHAPTER 7 ECONOMICS. Consumer spending in 2010 was $1. f.5 = $10.222. S-101 The components of GDP in the accompanying table were produced by the Bureau of Economic Analysis. Calculate 2010 exports as a percentage of imports.356.5 Nondurable goods 2.5.858.5 Private investment spending Fixed investment spending 1. Government purchases of goods and services and investment spending in 2010 were $1.8.728. Calculate 2010 consumer spending. KrugWellsECPS3e_Macro_CH07.839.2/$1. Calculate 2010 private investment spending.222.8 + 1.8/$2.7 338. Private investment spending in 2010 was $1. Gross domestic product in 2010 was $10.301.9%. Category Components of GDP in 2010 (billions of dollars) Consumer spending Durable goods $1.2 Nonresidential 1.085. Solution All figures below are in billions of dollars.9 Net exports Exports 1. g.indd S-101 4/19/12 11:08 AM .728.8 – $516.9.222. e.780. a.7 Government purchases of goods and services and investment spending Federal 1.301.7) × 100 = 78. d.245.1 Structures Equipment and software Residential Change in private inventories 374.5) × 100 = 66. Calculate 2010 government purchases of goods and services and investment spending.795.858.356. f.245. e.8) × 100 = 67. Net exports in 2010 were $1.5/$10. 3.356. Government purchases of goods and services on national defense as a percentage of federal purchases of goods and services in 2010 was ($819.1 66.2 + $66.390. c. Calculate 2010 consumer spending on services as a percentage of total consumer spending. h.GDP AND THE CPI: TRACKING THE MACROECONOMY 3.002.858. h.0 a.839. Exports as a percentage of imports in 2010 was ($1.245.839.7 = –$516.8 – $2. b.0 = $3.085.5 Services 6.0%. Consumer spending on services as a percentage of total consumer spending in 2010 was ($6.9= $14.002.6 State and local 1.1+$3. d.1%. Calculate 2010 government purchases on national defense as a percentage of federal government purchases of goods and services. c.8 National defense 819. Calculate 2010 gross domestic product.8 Imports 2.5.526. g. b.4 1. Calculate 2010 net exports.5+$1.5 + $2.795.2 Nondefense 403.780.1.5 + $6.015.9 = $1. each produced by a separate company. In the economy of Pizzania (from Problem 4). The pizza company uses the bread and cheese from the other companies to make its pizzas. For the bread company. CHAPTER 22 4. we need to sum factor income (wages and profits) for each firm. c. Solution a. Factor income is $200 ($50 + $35 + $115). Calculate GDP as spending on final goods and services. b. KrugWellsECPS3e_Macro_CH07. b. in the cheese company. we need to sum all value added (value of output less input costs) for each company. Bread company Cheese company Pizza company Cost of inputs $0 $0 $50 (bread) 35 (cheese) Wages 15 20 75 Value of output 50 35 200 a. $35. factor income is $115: labor earns $75 and profit is $40 ($200 – $75 – $50 – $35). Calculate GDP as factor income. factor income is $35: labor earns $20 and profit is $15. factor income is $50: labor earns $15 and profit is $35. All three companies employ labor to help produce their goods. For the pizza company. Calculate GDP as factor income. c. CHAPTER 7 ECONOMICS. To calculate GDP as spending on final goods and services. and pizza). The bread and cheese companies produce all the inputs they need to make bread and cheese. Cost of inputs Wages Value of output Bread company Cheese company Pizza company $0 $0 $50 (bread) 35 (cheese) 25 30 75 100 60 200 a. The total value added in production is $200 ($50 + $35 + $115). Calculate GDP as the value added in production. The small economy of Pizzania produces three goods (bread. Spending on final goods and services is $200. 4. 5. $115 ($200 – $50 – $35). Calculate GDP as spending on final goods and services. 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. For the cheese company. To calculate GDP as the value added in production. Value added in the bread company is $50. and in the pizza company. To calculate GDP as factor income.indd S-102 4/19/12 11:08 AM . The accompanying table summarizes the activities of the three companies. we only need to estimate the value of pizzas because all bread and cheese produced are intermediate goods used in the production of pizzas. respectively.S-102 MACROECONOMICS. c. b. cheese. and the difference between the value of goods sold and the sum of labor and input costs is the firm’s profit. Calculate GDP as the value added in production. 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 cheese company sells $25 worth as final goods. KrugWellsECPS3e_Macro_CH07.S. this transaction is not included in GDP because it does not represent production during the current time period. The net effect of the transaction does not change GDP in the United States. factor income is $100: labor earns $25 and profit is $75. factor income is $60: labor earns $30 and profit is $30. If a book publisher produces too many copies of a new book and the books don’t sell in the year they are produced. e. b. To calculate GDP as factor income. f. f. and pizzas sold as final goods. a. $115 ($200 – $50 – $35). it is investment spending and included in GDP. and all $200 worth of pizzas are final goods.indd S-103 4/19/12 11:08 AM . now it is just a sale of a used item. cheese. we need to sum all value added (value of output less input costs) for each company. the publisher adds the surplus books to inventories. b. the transaction is not included in GDP because there is no production. d. 6. Canada. GDP equals $275 ($100 + $60 + $115). Which of the following transactions will be included in GDP for the United States? a. $60. e.S. export and is entered as such in U. in the cheese company. But since it does not represent production in the United States of either perfume manufacture or perfume retailing. Coca-Cola builds a new bottling plant in the United States. it is a U. The total value added in production is $100 + $60 + $115 = $275. the books don’t sell this year. To calculate GDP as spending on final goods and services. factor income is $115: labor earns $75 and profit is $40 ($200 – $75 – $50 – $35). A book publisher produces too many copies of a new book. As factor income. GDP equals $275 because the bread company sells $50 worth as final goods. Ms. To calculate GDP as the value added in production. For the bread company. a. b. For the cheese company. If a California winery sells a bottle of Chardonnay to a customer in Montreal. When an individual buys an existing share of stock. An American buys a bottle of French perfume in Paris. These books are considered investment spending and added to GDP. GDP. we need to sum the value of bread. we need to sum factor income (labor and profits) for each firm. c. c. Moneybags buys an existing share of Disney stock. and in the pizza company.GDP AND THE CPI: TRACKING THE MACROECONOMY S-103 Solution 5. d. When an American buys a bottle of French perfume. If Delta sells one of its airplanes to Korean Air. it is also deducted from GDP as an import. When Coca-Cola builds a new bottling plant. A California winery produces a bottle of Chardonnay and sells it to a customer in Montreal. The airplane would have been included in GDP when it was produced. c. so the publisher adds the surplus books to inventories. Solution 6. it is a consumption expenditure as measured by GDP. Delta sells one of its existing airplanes to Korean Air. Value added in the bread company is $100. For the pizza company. It is as if the publisher bought the books itself. Nominal GDP for each year is calculated by summing up the value of the three goods produced in that year: Year Nominal GDP Percent change in nominal GDP 2010 $10.0% (equal to ((10.7% (equal to (($14 – $12)/$12) × 100).030 2011 10.000) × 100). of DVDs.0% (equal to (($12 – $10)/$10) × 100). Calculate real GDP in Britannica using 2010 prices for each of the three years.3% (equal to ((12 – 10. The accompanying table shows the prices and output of the three goods for the years 2010. 16. of DVDs.5 12 105 16 2 12 14 110 17 3 10 a.S-104 MACROECONOMICS.530)/$10.0% (equal to ((3 – 2)/2) × 100).000)/$1. From 2011 to 2012.945 − $10. What is the percent change in production of each of the goods from 2010 to 2011 and from 2011 to 2012? b.191 − $11. CHAPTER 7 ECONOMICS. c.000 2012 1.030)/$10.050 – $1. What is the percent change in nominal GDP from 2010 to 2011 and from 2011 to 2012? d.5 – 10)/10) × 100).0% (equal to ((105 – 100)/100) × 100).530 − $10. 50. DVDs. CHAPTER 22 7.792 − $10. 4. the percent change in the price of computers is 11.7% (equal to (($16 – $15)/$15) × 100).8% (equal to ((110 – 105)/105) × 100).030)/$10. 0% (equal to ((2 – 2)/2) × 100).030 2011 11. 5.191 20. and of pizza. The economy of Britannica produces three goods: computers.0% = (($10.5) × 100). and 2012.030) × 100 2012 14.1% (equal to (($1.945 13. b.4% = (($11. From 2010 to 2011.0% (equal to (($1.530) × 100 Percent change in real GDP 4/19/12 11:08 AM . and pizza.792)/$11.030) × 100 2012 11. the percent change in the production of computers is 5.6% = (($11.3% = (($14.050 Quantity DVDs Pizzas Price Quantity Price Quantity $10 100 $15 2 10. What is the percent change in real GDP from 2010 to 2011 and from 2011 to 2012? 7.25% (equal to (($17 – $16)/$16) × 100). From 2010 to 2011. the percent change in the price of computers is 5.530 5.000 – $900)/$900) × 100). 6. and of pizza. Calculate nominal GDP in Britannica for each of the three years.indd S-104 Year Real GDP (2005 dollars) 2010 $10.792) × 100 d. of DVDs. Computers Year Price 2010 $900 2011 1. Solution a.5)/10. From 2011 to 2012.792 17. Real GDP in 2010 prices is calculated by summing up the value of the three goods produced each year using 2010 prices: KrugWellsECPS3e_Macro_CH07. What is the percent change in prices of each of the goods from 2010 to 2011 and from 2011 to 2012? c. the percent change in the production of computers is 14. 6. 20. 2011. and of pizza. and of pizza. of DVDs. To calculate nominal GDP.027. valuing the output in 2010 using 2005 prices (real GDP) will result in a lower number than valuing the output in 2010 using 2010 prices (nominal GDP). How do the percent change in real GDP and the percent change in real GDP per capita compare? Which is larger? Do we expect them to have this relationship? 8. and 2000 to 2010.1 5.828.3 205. 1980 to 1990.7% KrugWellsECPS3e_Macro_CH07. real GDP (in billions of 2005 dollars).4 282. and 2000 to 2010. Calculate real GDP per capita for each of the years in the table.038. Which period had the highest growth rate? e. 1990 to 2000.089 1980 2. The percent change in real GDP was the highest during the 1960s. By the way. 1980.526.7% 1990 8. 1980.S.216. The U. Real GDP is greater than nominal GDP for all years until 2000 because the base year is 2005. 1990. and population (in thousands) of the United States in 1960.0 16. S-105 The accompanying table shows data on nominal GDP (in billions of dollars). Nominal GDP (billions of dollars) Real GDP (billions of 2005 dollars) Population (thousands) 1960 $526. 1970.418 2010 14.788. and 2010.088. Year Real GDP (billions of 2005 dollars) 1960 $2. 1990 to 2000.027. So to calculate real GDP for the years 1960.GDP AND THE CPI: TRACKING THE MACROECONOMY 8.760 1970 1. Calculate the percent change in real GDP per capita from 1960 to 1970. 1970 to 1980.indd S-105 Percent change in real GDP 4/19/12 11:08 AM .834.0 36. 1980 to 1990. we would multiply output by the lower prices that existed in those particular years.5 4.828. price level rose consistently over the period 1960–2010.0 227. Solution a. The accompanying table shows the percent change in real GDP from 1960 to 1970.726 1990 5. and from 1960 to 2005. Since prices rose from 2005 to 2010.1 37.088.5 13.1 250.5 1970 4.5 180.226.3 50.106 Year a. 1970 to 1980. we would multiply output in those years by the higher prices that existed in 2005. Which period had the highest growth rate? c. and 2000 to 2010. real GDP would equal nominal GDP in 2005 because 2005 is the base year and we use the same set of prices to value both real and nominal GDP in that year. 1970.0 310. b.951. and 2000.181 2000 9. d.834. 1990.4 39.8% 1980 5.266.5 8.800.4 $2. 1970 to 1980.7% 2010 13. 1980 to 1990. 1990 to 2000. 2000.216. Calculate the percent change in real GDP from 1960 to 1970.6% 2000 11.5 11. prices rose. Why is real GDP greater than nominal GDP for all years until 2000 and lower for 2010? b. Percent change in real GDP per capita 1960–1970 31. The percent change in the price of a math textbook from 2010 to 2012 is 5.648 1970 20. For a given time period. two math. as shown in the table. The percent change in the price of an economics textbook from 2010 to 2012 is 25% (equal to (($100 – $80)/$80) × 100). The prices of these books are given in the accompanying table. and then multiply by 100 to get an index value (base period of 2010 = 100). The average student purchases three English.2% 1990–2000 23. We should expect this pattern because the U. The percent change in the price of an English textbook from 2010 to 2012 is 14. two math. To create an index of textbook prices.205 d. The years from 1960 through 1970 had the highest growth rate. What is the percent change in the price of a math textbook from 2010 to 2012? c.0% (equal to (($57 – $50)/$50) × 100).716 2010 42. create a price index for these books for all years.7% 1970–1980 24. you must first calculate the cost of the market basket (three English.S. 9. CHAPTER 7 ECONOMICS. CHAPTER 22 c. Real GDP per capita (2005 dollars) 1960 $15.607 1980 25. Eastland College is concerned about the rising price of textbooks that students must purchase. What is the percent change in the price index from 2010 to 2012? Solution 9. then normalize it by dividing the cost of the market basket in a given year by the cost of the market basket in the base period.indd S-106 4/19/12 11:08 AM . the percent change in real GDP is consistently larger than the percent change in real GDP per capita. c. What is the percent change in the price of an English textbook from 2010 to 2012? b.7% (equal to (($74 – $70)/$70) × 100). a. b.3% e. to create an index of textbook prices.S-106 MACROECONOMICS. the dean asks you. d. population was growing from 1960 to 2010.3% 1980–1990 25. and four economics textbooks per year. Using 2010 as a base year. e. What is the percent change in the price of an economics textbook from 2010 to 2012? d. KrugWellsECPS3e_Macro_CH07. 2010 2011 2012 $50 $55 $57 Math textbook 70 72 74 Economics textbook 80 90 100 English textbook a.8% 2000–2010 6.085 2000 39. and four economics textbooks) in each of the three years.619 1990 32. To better identify the increase in the price of textbooks. the Economics Department’s star student. The consumer price index.2 10.9 – 100)/100) × 100).9% (equal to ((117. 15% on food. For the retired person: Weight CPI July 2011 Housing 0. 10. CPI November 2007 Housing 220.05 216.15 228. 0% on education. The percent change in the price index for textbooks from 2010 to 2012 is 17.81 Medical care 0.3 34. Let’s compare the cost of living for a hypothetical retired person and a hypothetical college student. using data from the consumer price index. However.3 Education 206. or CPI.3 240.7 Index value for 2012 = ($719/$610) × 100 = 117. we can see that changes in the cost of living for different types of consumers can vary a great deal.9 e. and 10% on recreation. 20% on transportation. Let’s assume that the market basket of a retired person is allocated in the following way: 10% on housing.245 Transportation 0.1 220. How do your calculations for a CPI for the retired person and the college student compare to the overall CPI? Solution 10.5 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.3 Transportation 216.02 Food 0. The CPI for all items in July 2011 was 225. and 20% on recreation. 40% on education. 15% on food. The accompanying table shows the July 2011 CPI for each of the relevant categories. 0% on medical care.2 Recreation 0.GDP AND THE CPI: TRACKING THE MACROECONOMY S-107 Cost of textbooks in 2010 = (3 × $50) + (2 × $70) + (4 × $80) = $610 Cost of textbooks in 2011 = (3 × $55) + (2 × $72) + (4 × $90) = $669 Cost of textbooks in 2012 = (3 × $57) + (2 × $74) + (4 × $100) = $719 Index value for 2010 = ($610/$610) × 100 = 100 Index value for 2011 = ($669/$610) × 100 = 109.indd S-107 CPI Contribution 0 11. food.6 400.2 Medical care 400.18 Education 0 206.2 Recreation 113.9. and so on) times a measure of the importance of that expenditure in the average consumer’s market basket and summing over all categories.2 Food 228.1 113. 60% on medical care.2 22. measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing.605 4/19/12 11:08 AM . 5% on transportation.5 Overall CPI KrugWellsECPS3e_Macro_CH07. The college student’s market basket is allocated as follows: 5% on housing.35 318. 2 108.5% from June 2011.05 220. a.5 103.7 14.2 43.958. under “Table of Contents.0 14. Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary for the previous month.5 a.gov.6% higher than in July 2010.2 106.291. yielding the figures in the accompanying table. The GDP deflator in a given year is 100 times the ratio of nominal GDP to real GDP. click on “Consumer Price Index. it rose 0.291. Place the cursor over the “Economic Releases” tab and then click on “Major Economic Indicators” in the drop-down menu that appears.161. For July 2011.0 Nominal GDP (billions of dollars) 13.9. The CPI for the retired person is 318. CHAPTER 7 ECONOMICS.922.9 12.4 13.245 Transportation 0.2 11.2 14.2 113.703.5 13.7 Overall CPI 193.4 13.088. The accompanying table provides the annual real GDP (in billions of 2005 dollars) and nominal GDP (in billions of dollars) for the United States.939.15 228.5 13.377.0 GDP deflator KrugWellsECPS3e_Macro_CH07.958.5 13.indd S-108 4/19/12 11:08 AM .5 0 82.2 216.3 34.01 Housing Food 0. Use the GDP deflator to calculate the inflation rate for all years except 2006. 2006 2007 2008 2009 2010 Real GDP (billions of 2005 dollars) 12.9 12.605 and for the college student is 193.7 14.675.” click on “Consumer Price Index Summary.S-108 MACROECONOMICS.1 13.703. Once on the “Major Economic Indicators” page.” What was the CPI for the previous month? How did it change from the previous month? How does the CPI compare to the same month one year ago? 11.5 13. Since the CPI for the average consumer was 225.48 22.3 Education 0.526.0 14.6 109. Solution 12. Calculate the GDP deflator for each year.206.028.088.” Use the “not seasonally adjusted” figures. Go to The Bureau of Labor Statistics home page at www.028.206. Solution Answers will vary with the latest data.24 Medical care 0 400.939. the CPI will overstate the increase in the cost of living for the college student and understates it for the retired person. 2006 2007 2008 2009 2010 Real GDP (billions of 2005 dollars) 12.2 Recreation 0. The CPI was 3. the (not seasonally adjusted) CPI was 225. b.7 111.2 14.1 13.0 Nominal GDP (billions of dollars) 13. 12. bls. 11. we need to weight the CPI for each component with the importance of that component in his or her market basket.161.526. On that page.675 To calculate the CPI for the retired person and for the college student.4 206. CHAPTER 22 For the college student: Weight CPI November 2011 CPI Contribution 0.377. The accompanying table calculates the inflation rates based on the GDP deflator and on the CPI.445 $1.079 1.9% 2.6 109.974 Four-year private college: on-campus 26.056 Solution 13.041 7. 2009. on-campus Tuition and fees Room and board Books and supplies Transportation Other expenses $2.303 2009 109.992 1.605 8.2% 1.4% 2010 110.729 1.056 1.1% 1.2% The accompanying table contains two price indexes for the years 2008.137 1.548 8. Assume the costs listed in the table are the only costs experienced by the various college students in a single year. Cost of college education during academic year beginning 2009 (averages in 2009 dollars) Tuition and fees Room and board Books and supplies Transportation Other expenses $2.7 111.582 215.2 106.537 2010 110.713 $7.595 8.1% 214. 2. The table below shows the average cost of a college education in the United States during the academic year that began in 2009 and the academic year that began in 2010 for public and private colleges.974 Four-year public college: out-of-state.202 $1.2 108.535 1.491 $2.122 1.0 Inflation 13. yielding the figures in the accompanying table.544 $7.700 1.122 1.427 Two-year public college: commuter Four-year public college: in-state. The inflation rate obtained by using the GDP deflator is calculated using the formula ((current GDP deflator – GDP deflator in the previous year)/(GDP deflator in the previous year)) × 100.116 849 1. 14.303 2009 109.020 8.079 1.193 1.273 9.992 218.181 862 1.989 Four-year public college: out-of-state. For each price index. calculate the inflation rate from 2008 to 2009 and from 2009 to 2010. GDP deflator 2006 2007 2008 2009 2010 103.073 1.GDP AND THE CPI: TRACKING THE MACROECONOMY S-109 b.6% The cost of a college education in the United States is rising at a rate faster than inflation. on-campus Cost of college education during academic year beginning 2010 (averages in 2010 dollars) Two-year public college: commuter Four-year public college: in-state. Year GDP deflator CPI 2008 108.582 Inflation rate (based on GDP deflator) Inflation rate (based on CPI) CPI 215. Year GDP deflator 2008 108. and 2010: the GDP deflator and the CPI.989 Four-year private college: on-campus 27.133 $1.073 1.293 9.137 1. on-campus 19.363 1.440 KrugWellsECPS3e_Macro_CH07.537 –0.098 $1.535 1.193 1.259 $1.2% 218.729 214.996 7. on-campus 18.indd S-109 4/19/12 11:08 AM . Inflation rate KrugWellsECPS3e_Macro_CH07. Average cost of attendance in dollars 2009 2010 Two-year public college: commuter $14. CHAPTER 7 ECONOMICS.476 b. The inflation rate for each type of student is calculated as follows: ((price index in 2010 − price index in 2009)/(price index in 2009)) × 100. the cost of living can be used as a price index.S-110 MACROECONOMICS.329 Four-year private college: on-campus 39.339 Four-year public college: out-of-state. To calculate the cost of living. on-campus 4.indd S-110 Two-year public college: commuter 2. Because each type of student consumes the same goods and services in 2009 and 2010. on-campus 19. on-campus 4. 14. the inflation rates are calculated in the following table. Calculate the cost of living for an average college student in each category for 2009 and 2010. on-campus 30. Using the formula. CHAPTER 22 a.916 32.285 $14.9% Four-year public college: out-of-state. b. we add all the costs in each category. The cost of living for each type of student is calculated in the accompanying table.5% Four-year public college: in-state.7% 4/19/12 11:08 AM .637 Four-year public college: in-state. Solution a. Calculate an inflation rate for each type of college student between 2009 and 2010.6% Four-year private college: on-campus 3.028 40.388 20.