ECON 1P92 Assignment 4 October 10, 2021 Instructions: Please write out your answers clearly, and submit them by 5pm EST on Sunday, October 17th, 2021 (via Sakai’s drobox feature). You may type your assignment or write it in hard copy. If you write in hard copy, then please use a scanning app such as Turbos can to scan your assignment. All assignments must be submitted via Dropbox on Sakai. If you are citing sources, then please use an accepted citation style (MLA, Chicago, APA, etc.). Short Response 1. Use the All-Item Consumer Price Index on the Statistics Canada website (base year=2002) to respond to the following questions. Specifically look at Table 18-1000501.1 Assume that all prices are provided in Canadian dollars and show your work. (5% each) (a) In 1955, a two-story detached house, with a large lot, in downtown Toronto (Davisville Village) sold for $30,000. How much is this in 2020 dollars? (b) In 1954, the average family income in Canada was $4,136. How much is this in 2020 dollars? (c) You manage a Toronto hedge fund from 2000 to 2010. Over this period, you make your clients a 10% return on their money. For example, someone who invested $100,000 with you in 2000 has $110,000 in 2010. Is this performance good, when adjusted for inflation? (d) In 2002, the average spot price of silver was $4.60. In 2020, the average spot price had risen to $20.69. By how much percent has the price of silver risen from 2002 to 2020, when adjusted for inflation?2 (e) In 1950, an expensive date cost $10. How much would this be in 2020 dollars? (f) Boomers often complain about Zoomers, and Millennials being spoiled and lazy. A typical 1 See here: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000501 2Reddit.com/r/WallStreetSilver. Boomer may say something like, “When I was in university, my summer job paid for the tuition.” In 1975, Canadian tuition was $551. How much is this in 2020 dollars? 1 2. In the future, “you will own nothing, and you will be happy.” Jack is a lowly office worker in 2030 and represents the typical consumer. He only spends his money on three items: his daily food cube (which provides all the necessary macronutrients and calories for the day in the palm of your hand!), Uber rides, and rent on his 250 square foot apartment (which is sometimes used as a meeting space and love hotel). Jack’s annual consumption is 365 food cubes, 600 Uber rides, and 12 rental payments. Let 2029 be the base year and assume that the CPI for 2030 is 150. Year Price of Food Cube Price of Uber Ride Price of Rental Payment 2030 $15 $30 $665 2031 $20 $40 $1,000 2032 $25 $40 $3,330 2033 $30 $35 $10,000 (a) Calculate the CPI for 2031, 2032, and 2033. Show your work. (15%) (b) Now let 2030 be the base year. Calculate the CPI for 2031, 2032, and 2033. Show your work. (15%) 3. Use an appropriate diagram, with exponential growth of population and linear growth of food, to demonstrate the Malthusian theory in each of the following scenarios. Assume a Malthusian world and explain the effect on per-capita wealth over time. In your diagram, ‘Time’ should be on the horizontal axis and ‘Quantity’ should be on the vertical axis. Explain your reasoning in each case. (5% each) (a) Solid public hygiene policies are adopted, and people’s cultural values shift towards more cleanliness. (b) A genocide destroys 25 percent of the population. (c) A medicine is developed which sterilizes 90 percent of the population. (d) The Industrial Revolution occurs, causing food and resource growth to become exponential, outpacing population growth. 4. In each of the following cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (5% each) (a) By 1990, expensive personal computers became a common expenditure in consumers ’baskets. However, some governments were still calculating the consumer’s basket using a 1975 survey. (b) Between 2007 and 2015, there were significant improvements in smartphones. (c) Compared to 1970, households in 2015 took more vacations. (d) Food quality has deteriorated over time, even as consumers purchase the same amount. 2