# Economic – Money and Banking

- (30 points total – 5 points for each part) Using the following link to obtain CPI data (https://research.stlouisfed.org/fred2/data/CPIAUCSL.txt), find the value of the CPI in May of 1958 and answer the following questions:

- If the CPI basket in the base period cost $3,000, consistent with the example in the lectures, what would that same basket cost in May of 1958?

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- If a person was making $40,000 in the base period, how much would they have to make during May of 1958 to have the same purchasing power as $40,000 has in the base period?

- Calculate the rate of inflation between May of 1958 and May of 1959 (show work).

- Using the data on one year interest rates (https://research.stlouisfed.org/fred2/data/GS1.txt), calculate the ex-post real rate of interest between May of 1958 and May of 1959.

- Calculate the ex-post real rate of interest from January 2012 to January 2013.

- Calculate the ex-ante real rate of interest from January 2012 to January 2013. To do so, you need data on expected inflation (https://research.stlouisfed.org/fred2/data/MICH.txt). Note that all data on expected inflation is based on expectations for the next 12 months – for example, to make sure we are on same page, verify that the expected rate of inflation from January 2010 to January 2011 was 2.8%.

- (10 points) During the second quarter of 1958, calculate the GDP gap. To do so, you need data on potential GDP (https://research.stlouisfed.org/fred2/data/GDPPOT.txt) and data on actual GDP (https://research.stlouisfed.org/fred2/data/GDPC1.txt). The GDP gap is calculated by taking the actual value of GDP minus potential GDP divided by potential GDP times 100. Also note the notation for quarters – for example: 2000 – 01 – 01 is the first quarter (Jan., Feb., March) of 2000 where 2000-10-01 is data for the fourth quarter of 2000 (Oct., Nov., Dec.).

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