Revision Exercise: Inflation

Using the information and formulae below:

1. Calculate Price level for each basket of goods and services for each year:
2015 and 2019
2. Calculate CPI - base: 2015, Current 2019.
3. Calculate Inflation rate

2 . Calculate the inflation rate of the following

January 2020 January 2021
2500 3780

3 . If the consumer price index at the end of 2011 was 100 and at the end of
2012 was 120, then the rate of inflation for 2012 was?
4 . If the Consumer Price Index (CPI) falls from 125 to 121 in a particular year,
the economy has experienced?
5 . If the CPI at the end of 2016 was 110 and at the end of 2017 was 120, then
the rate of inflation for 2017 was?
6 . From the following table, calculate the inflation rate for March 2016.

Consumer Price Index

(CPI)
Month 2015 2016
January 88.9 94.4
February 89.4 95.7
March 90.7 96.4
April 91.5 97.2
May 91.7 97.4

7 . The graph below illustrates which type of inflation?

.
Revision Exercise: Growth/GDP

Calculate A, B and C

Year GDP at current GDP at constant GDP deflator

prices 2012 prices
2011 400 000 600 000 A
2012 500 000 B C
Revision Exercise: Keynesian Model with Government and Foreign Sector

Algebraically, the Keynesian model is as follows:

Y = A (Keynes Law: Production and Income are driven by aggregate demand)

• A=C+I ̅+G ̅+(X ̅-Z) (Aggregate Spending function)

• C=C ̅+c(1-t)Y (Consumption function with tax consideration)

• c = Marginal Propensity to Consume (MPC)
• t=tax rate
• Z=Z ̅+mY (Imports Function)
• X= X ̅ (Exports function)
• G = G ̅ (Government Spending function)

Y=α (A ̅) (Equilibrium level of income using multiplier)

Where:

α = 1/(1-c(1-t)+m) (multiplier with government and foreign sector

considerations)
m= Marginal Propensity to Save (MPS)
A ̅= C ̅+I ̅+G ̅+(X ̅-Z )̅ (Autonomous Aggregate Spending function)

Total income = Y
Disposable income : Yd
Yd = Y – T (income – Taxes)
T = tY (t= tax rate)
∴Yd = (1 – t)Y
 1. Study the diagram below and answer the following questions.

a. Cal the autonomous consumption

b. Cal the investment
c. Cal the equilibrium income
d. Cal the equilibrium level of saving
2. Using the graph above, assume that the
mps = 0.45
T = 0.2
G = 100
X = 500
M = 150
I = 200
a. Calculate the multiplier
b. Cal the equilibrium level of income
3 . Look at the following information:
Marginal propensity to consume = 0,9
Investment = R200 million
Autonomous consumption = R70 million
a. Calc the MPS
b. The equilibrium level of income is?
4 . Consider the following information and cal the equilibrium level of income
Marginal propensity to consume = 0.8
Investment = R150 million
Autonomous consumption = R110 million

5 . In a Keynesian model of a closed economy, if autonomous consumption is

R420 million, investment spending is R600 million, government spending is R550
million, the marginal propensity to consume is 0.8 and the tax rate is 0.25 (or
25%), the equilibrium level of income is?

6 . Consider a Keynesian model where:

exports = R10 million
the marginal propensity to import out of income = 0.25
autonomous imports = R15 million
the tax rate = 0.2
government spending = R30 million
investment = R25 million
autonomous consumption = R20 million
the marginal propensity to consume = 0.8
a. Caculate the multiplier
b. Calc the equlibrium level of income
7 . In a Keynesian model of an open economy, if total autonomous spending is
R2 000 billion, the tax rate is 0.3 (or 30%), the marginal propensity to consume
is 0.6, and the marginal propensity to import is 0.2, then the equilibrium level of
income is?
8 . In a Keynesian model of a closed economy, if autonomous consumption is
R100 million, investment spending is R200 million, government spending is R300
million, the marginal propensity to consume is 0.8 and the tax rate is 0.25 (or
25%), and full employment level of income is R2 000 million, by how much
should government spending increase to achieve full employment?