ECONOMICS

22 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 householdsthe sum of taxes paid and consumer spendingequal 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 $750the same as the wages, profit,
interest, and rent received by households.
e. The government finances its purchases of goods and services with tax revenue.

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MACROECONOMICS, CHAPTER 7
ECONOMICS, CHAPTER 22

2.

A more complex circular-flow diagram for the economy of Macronia is shown below.
(Note that Macronia has investment spending and financial markets.)
a. What is the value of GDP in Macronia?
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 householdsthe sum of taxes paid, consumer
spending, and private savingsequal the total flow of money into households?
e. 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, profit,
interest,
rent = $800

Consumer
spending = $510

Factor
markets

Markets for goods

and services
Gross
domestic
product

Wages, profit,
interest,
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.
Solution

a. We can measure GDP in Macronia as the sum of all spending on domestically

produced final goods and services. Spending consists of consumer spending,
investment spending, government purchases of goods and services, and exports
less imports, or $800 ($510 + $110 + $150 + $50 - $20).
b. Net exports are exports less imports. In Macronia, net exports equal
$30 ($50 - $20).

c. Disposable income is income received by households less taxes plus government

transfers. In Macronia, disposable income equals $710 ($800 - $100 + $10).
d. Yes. Consumer spending plus taxes plus private savings equals $810the same as
the wages, profit, interest, rent, and government transfers received by households.
e. In Macronia, the government needs to finance $160 in spending ($150 on purchases of goods and services and $10 in government transfers). The government
finances $100 of its spending with tax revenue and the other $60 through borrowing in financial markets.

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GDP AND THE CPI: TRACKING THE MACROECONOMY

3.

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The components of GDP in the accompanying table were produced by the Bureau of
Economic Analysis.
Category

Components of GDP in 2010

(billions of dollars)

Consumer spending
Durable goods

$1,085.5

Nondurable goods

2,301.5

Services

6,858.5

Private investment spending

Fixed investment spending

1,728.2

Nonresidential

1,390.1

Structures
Equipment and software
Residential
Change in private inventories

374.4
1,015.7
338.1
66.9

Net exports
Exports

1,839.8

Imports

2,356.7

Government purchases of goods and

services and investment spending
Federal

1,222.8

National defense

819.2

Nondefense

403.6

State and local

1,780.0

a. Calculate 2010 consumer spending.

b. Calculate 2010 private investment spending.
c. Calculate 2010 net exports.
d. Calculate 2010 government purchases of goods and services and investment spending.
e. Calculate 2010 gross domestic product.
f. Calculate 2010 consumer spending on services as a percentage of total consumer
spending.
g. Calculate 2010 exports as a percentage of imports.
h. Calculate 2010 government purchases on national defense as a percentage of federal government purchases of goods and services.

3.
Solution

All figures below are in billions of dollars.

a. Consumer spending in 2010 was $1,085.5 + $2,301.5 + $6,858.5 = $10,245.5.
b. Private investment spending in 2010 was $1,728.2 + $66.9 = $1,795.1.
c. Net exports in 2010 were $1,839.8 $2,356.7 = $516.9.
d. Government purchases of goods and services and investment spending in 2010
were $1,222.8 + 1,780.0 = $3,002.8.
e. Gross domestic product in 2010 was $10,245.5+$1,795.1+$3,002.8 $516.9=
$14,526.5.
f. Consumer spending on services as a percentage of total consumer spending in
2010 was ($6,858.5/$10,245.5) 100 = 66.9%.
g. Exports as a percentage of imports in 2010 was ($1,839.8/$2,356.7) 100 = 78.1%.
h. Government purchases of goods and services on national defense as a percentage of federal purchases of goods and services in 2010 was ($819.2/$1,222.8) 100 = 67.0%.

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MACROECONOMICS, CHAPTER 7
ECONOMICS, CHAPTER 22

4.

The small economy of Pizzania produces three goods (bread, cheese, and pizza), each
produced by a separate company. The bread and cheese companies produce all the
inputs they need to make bread and cheese, respectively. The pizza company uses the
bread and cheese from the other companies to make its pizzas. All three companies
employ labor to help produce their goods, and the difference between the value of
goods sold and the sum of labor and input costs is the firms profit. 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.
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. Calculate GDP as the value added in production.

b. Calculate GDP as spending on final goods and services.
c. Calculate GDP as factor income.

4.
Solution

a. To calculate GDP as the value added in production, we need to sum all value
added (value of output less input costs) for each company. Value added in the
bread company is $50; in the cheese company, $35; and in the pizza company,
$115 ($200 $50 $35). The total value added in production is $200 ($50 +
$35 + $115).
b. To calculate GDP as spending on final goods and services, we only need to estimate the value of pizzas because all bread and cheese produced are intermediate
goods used in the production of pizzas. Spending on final goods and services is
$200.
c. To calculate GDP as factor income, we need to sum factor income (wages and
profits) for each firm. For the bread company, factor income is $50: labor earns
$15 and profit is $35. For the cheese company, factor income is $35: labor earns
$20 and profit is $15. For the pizza company, factor income is $115: labor earns
$75 and profit is $40 ($200 $75 $50 $35). Factor income is $200 ($50 +
$35 + $115).

5.

In the economy of Pizzania (from Problem 4), 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 accompanying table summarizes the activities of the three
companies.

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. Calculate GDP as the value added in production.

b. Calculate GDP as spending on final goods and services.
c. Calculate GDP as factor income.

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Solution
5.

a. To calculate GDP as the value added in production, we need to sum all value
added (value of output less input costs) for each company. Value added in the
bread company is $100; in the cheese company, $60; and in the pizza company,
$115 ($200 $50 $35). The total value added in production is $100 + $60 +
$115 = $275.
b. To calculate GDP as spending on final goods and services, we need to sum the
value of bread, cheese, and pizzas sold as final goods. GDP equals $275 because
the bread company sells $50 worth as final goods, the cheese company sells $25
worth as final goods, and all $200 worth of pizzas are final goods.
c. To calculate GDP as factor income, we need to sum factor income (labor and
profits) for each firm. For the bread company, factor income is $100: labor earns
$25 and profit is $75. For the cheese company, factor income is $60: labor earns
$30 and profit is $30. For the pizza company, factor income is $115: labor earns
$75 and profit is $40 ($200 $75 $50 $35). As factor income, GDP equals
$275 ($100 + $60 + $115).

6.

Which of the following transactions will be included in GDP for the United States?
a. Coca-Cola builds a new bottling plant in the United States.
b. Delta sells one of its existing airplanes to Korean Air.
c. Ms. Moneybags buys an existing share of Disney stock.
d. A California winery produces a bottle of Chardonnay and sells it to a customer in
Montreal, Canada.
e. An American buys a bottle of French perfume in Paris.
f. A book publisher produces too many copies of a new book; the books dont sell
this year, so the publisher adds the surplus books to inventories.

Solution
6.

a. When Coca-Cola builds a new bottling plant, it is investment spending and

included in GDP.
b. If Delta sells one of its airplanes to Korean Air, this transaction is not included in
GDP because it does not represent production during the current time period. The
airplane would have been included in GDP when it was produced; now it is just a
sale of a used item.
c. When an individual buys an existing share of stock, the transaction is not included in GDP because there is no production.
d. If a California winery sells a bottle of Chardonnay to a customer in Montreal, it is
a U.S. export and is entered as such in U.S. GDP.
e. When an American buys a bottle of French perfume, it is a consumption expenditure as measured by GDP. But since it does not represent production in the United
States of either perfume manufacture or perfume retailing, it is also deducted
from GDP as an import. The net effect of the transaction does not change GDP in
the United States.
f. If a book publisher produces too many copies of a new book and the books dont
sell in the year they are produced, the publisher adds the surplus books to inventories. These books are considered investment spending and added to GDP. It is as
if the publisher bought the books itself.

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MACROECONOMICS, CHAPTER 7
ECONOMICS, CHAPTER 22

7.

The economy of Britannica produces three goods: computers, DVDs, and pizza. The
accompanying table shows the prices and output of the three goods for the years
2010, 2011, and 2012.
Computers
Year

Price

2010

$900

2011

1,000

2012

1,050

Quantity

DVDs

Pizzas

Price

Quantity

Price

Quantity

$10

100

$15

10.5

12

105

16

12

14

110

17

10

a. What is the percent change in production of each of the goods from 2010 to 2011
and from 2011 to 2012?
b. What is the percent change in prices of each of the goods from 2010 to 2011 and
from 2011 to 2012?
c. Calculate nominal GDP in Britannica for each of the three years. What is the percent change in nominal GDP from 2010 to 2011 and from 2011 to 2012?
d. Calculate real GDP in Britannica using 2010 prices for each of the three years. What
is the percent change in real GDP from 2010 to 2011 and from 2011 to 2012?

7.
Solution

a. From 2010 to 2011, the percent change in the production of computers is 5.0%
(equal to ((10.5 10)/10) 100); of DVDs, 5.0% (equal to ((105 100)/100)
100); and of pizza, 0% (equal to ((2 2)/2) 100). From 2011 to 2012,
the percent change in the production of computers is 14.3% (equal to ((12
10.5)/10.5) 100); of DVDs, 4.8% (equal to ((110 105)/105) 100); and of
pizza, 50.0% (equal to ((3 2)/2) 100).
b. From 2010 to 2011, the percent change in the price of computers is 11.1%
(equal to (($1,000 $900)/$900) 100); of DVDs, 20.0% (equal to
(($12 $10)/$10) 100); and of pizza, 6.7% (equal to (($16 $15)/$15)
100). From 2011 to 2012, the percent change in the price of computers
is 5.0% (equal to (($1,050 $1,000)/$1,000) 100); of DVDs, 16.7%
(equal to (($14 $12)/$12) 100); and of pizza, 6.25% (equal to
(($17 $16)/$16) 100).
c. 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

$10,030

2011

11,792

17.6% = (($11,792 $10,030)/$10,030) 100

2012

14,191

20.3% = (($14,191 $11,792)/$11,792) 100

d. 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.indd S-104

Year

Real GDP
(2005 dollars)

2010

$10,030

2011

10,530

5.0% = (($10,530 $10,030)/$10,030) 100

2012

11,945

13.4% = (($11,945 $10,530)/$10,530) 100

Percent change in real GDP

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GDP AND THE CPI: TRACKING THE MACROECONOMY

8.

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The accompanying table shows data on nominal GDP (in billions of dollars), real
GDP (in billions of 2005 dollars), and population (in thousands) of the United
States in 1960, 1970, 1980, 1990, 2000, and 2010. The U.S. price level rose consistently over the period 19602010.
Nominal GDP
(billions of
dollars)

Real GDP
(billions of
2005 dollars)

Population
(thousands)

1960

$526.4

$2,828.5

180,760

1970

1,038.5

4,226.3

205,089

1980

2,788.1

5,834.0

227,726

1990

5,800.5

8,027.1

250,181

2000

9,951.5

11,216.4

282,418

2010

14,526.5

13,088.0

310,106

Year

a. Why is real GDP greater than nominal GDP for all years until 2000 and lower for
2010?
b. Calculate the percent change in real GDP from 1960 to 1970, 1970 to 1980, 1980 to
1990, 1990 to 2000, and 2000 to 2010. Which period had the highest growth rate?
c. Calculate real GDP per capita for each of the years in the table.
d. Calculate the percent change in real GDP per capita from 1960 to 1970, 1970
to 1980, 1980 to 1990, 1990 to 2000, and 2000 to 2010. Which period had the
highest growth rate?
e. 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.
Solution

a. Real GDP is greater than nominal GDP for all years until 2000 because the base
year is 2005, and from 1960 to 2005, prices rose. So to calculate real GDP for the
years 1960, 1970, 1980, 1990, and 2000, we would multiply output in those years
by the higher prices that existed in 2005. To calculate nominal GDP, we would
multiply output by the lower prices that existed in those particular years. Since
prices rose from 2005 to 2010, 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). By the way, 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.
b. The accompanying table shows the percent change in real GDP from 1960 to
1970, 1970 to 1980, 1980 to 1990, 1990 to 2000, and 2000 to 2010. The percent
change in real GDP was the highest during the 1960s.

Year

Real GDP
(billions of
2005 dollars)

1960

$2,828.5

1970

4,266.3

50.8%

1980

5,834.0

36.7%

1990

8,027.1

37.6%

2000

11,216.4

39.7%

2010

13,088.0

16.7%

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change in
real GDP

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MACROECONOMICS, CHAPTER 7
ECONOMICS, CHAPTER 22

c.

Real GDP per capita (2005 dollars)

1960

$15,648

1970

20,607

1980

25,619

1990

32,085

2000

39,716

2010

42,205

d. The years from 1960 through 1970 had the highest growth rate, as shown in the table.
Percent change in real GDP per capita

19601970

31.7%

19701980

24.3%

19801990

25.2%

19902000

23.8%

20002010

6.3%

e. For a given time period, the percent change in real GDP is consistently larger than
the percent change in real GDP per capita. We should expect this pattern because
the U.S. population was growing from 1960 to 2010.

9.

Eastland College is concerned about the rising price of textbooks that students must
purchase. To better identify the increase in the price of textbooks, the dean asks you,
the Economics Departments star student, to create an index of textbook prices. The
average student purchases three English, two math, and four economics textbooks
per year. The prices of these books are given in the accompanying table.
2010

2011

2012

$50

$55

$57

Math textbook

70

72

74

Economics textbook

80

90

100

English textbook

a. What is the percent change in the price of an English textbook from 2010 to 2012?
b. What is the percent change in the price of a math textbook from 2010 to 2012?
c. What is the percent change in the price of an economics textbook from 2010 to 2012?
d. Using 2010 as a base year, create a price index for these books for all years.
e. What is the percent change in the price index from 2010 to 2012?

Solution
9.

a. The percent change in the price of an English textbook from 2010 to 2012 is
14.0% (equal to (($57 $50)/$50) 100).
b. The percent change in the price of a math textbook from 2010 to 2012 is 5.7%
(equal to (($74 $70)/$70) 100).

c. The percent change in the price of an economics textbook from 2010 to 2012 is
25% (equal to (($100 $80)/$80) 100).
d. To create an index of textbook prices, you must first calculate the cost of the market basket (three English, two math, and four economics textbooks) in each of the
three years; 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; and then multiply by 100
to get an index value (base period of 2010 = 100).

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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 = 109.7
Index value for 2012 = ($719/$610) 100 = 117.9
e. The percent change in the price index for textbooks from 2010 to 2012 is 17.9%
(equal to ((117.9 100)/100) 100).

10.

The consumer price index, or CPI, measures the cost of living for a typical urban household by multiplying the price for each category of expenditure (housing, food, and so
on) times a measure of the importance of that expenditure in the average consumers
market basket and summing over all categories. However, using data from the consumer
price index, we can see that changes in the cost of living for different types of consumers can vary a great deal. Lets compare the cost of living for a hypothetical retired person and a hypothetical college student. Lets assume that the market basket of a retired
person is allocated in the following way: 10% on housing, 15% on food, 5% on transportation, 60% on medical care, 0% on education, and 10% on recreation. The college
students market basket is allocated as follows: 5% on housing, 15% on food, 20% on
transportation, 0% on medical care, 40% on education, and 20% on recreation. The
accompanying table shows the July 2011 CPI for each of the relevant categories.
CPI
November 2007

Housing

220.2

Food

228.3

Transportation

216.2

Medical care

400.3

Education

206.2

Recreation

113.5

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. The CPI for all items in
July 2011 was 225.9. How do your calculations for a CPI for the retired person and
the college student compare to the overall CPI?

Solution
10.

For the retired person:

Weight

CPI
July 2011

Housing

0.1

220.2

22.02

Food

0.15

228.3

34.245

Transportation

0.05

216.2

10.81

Medical care

0.6

400.3

240.18

Education

206.2

Recreation

0.1

113.5

Overall CPI

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CPI
Contribution

0
11.35
318.605

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MACROECONOMICS, CHAPTER 7
ECONOMICS, CHAPTER 22

For the college student:

Weight

CPI
November 2011

CPI
Contribution

0.05

220.2

11.01

Housing
Food

0.15

228.3

34.245

Transportation

0.2

216.2

43.24

Medical care

400.3

Education

0.4

206.2

Recreation

0.2

113.5

0
82.48
22.7

Overall CPI

193.675

To calculate the CPI for the retired person and for the college student, we need to weight
the CPI for each component with the importance of that component in his or her market
basket. The CPI for the retired person is 318.605 and for the college student is 193.675.
Since the CPI for the average consumer was 225.9, the CPI will overstate the increase in
the cost of living for the college student and understates it for the retired person.

11.

Each month the Bureau of Labor Statistics releases the Consumer Price Index Summary
for the previous month. Go to The Bureau of Labor Statistics home page at www.
bls.gov. Place the cursor over the Economic Releases tab and then click on Major
Economic Indicators in the drop-down menu that appears. Once on the Major
Economic Indicators page, click on Consumer Price Index. Use the not seasonally
adjusted figures. On that page, under Table of Contents, click on Consumer Price
Index Summary. 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.
Solution

Answers will vary with the latest data. For July 2011, the (not seasonally adjusted) CPI
was 225.922; it rose 0.5% from June 2011. The CPI was 3.6% higher than in July 2010.

12.

The accompanying table provides the annual real GDP (in billions of 2005 dollars)
and nominal GDP (in billions of dollars) for the United States.
2006

2007

2008

2009

2010

Real GDP
(billions of
2005 dollars) 12,958.5 13,206.4 13,161.9 12,703.1 13,088.0
Nominal GDP
(billions of
dollars)
13,377.2 14,028.7 14,291.5 13,939.0 14,526.5

a. Calculate the GDP deflator for each year.

b. Use the GDP deflator to calculate the inflation rate for all years except 2006.

Solution
12.

a. The GDP deflator in a given year is 100 times the ratio of nominal GDP to real
GDP, yielding the figures in the accompanying table.
2006

2007

2008

2009

2010

Real GDP
(billions of 2005 dollars)

12,958.5

13,206.4

13,161.9

12,703.1

13,088.0

Nominal GDP
(billions of dollars)

13,377.2

14,028.7

14,291.5

13,939.0

14,526.5

103.2

106.2

108.6

109.7

111.0

GDP deflator

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GDP AND THE CPI: TRACKING THE MACROECONOMY

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b. 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, yielding the figures in the accompanying table.

GDP deflator

2006

2007

2008

2009

2010

103.2

106.2

108.6

109.7

111.0

Inflation

13.

2.9%

2.2%

1.1%

1.2%

The accompanying table contains two price indexes for the years 2008, 2009, and
2010: the GDP deflator and the CPI. For each price index, calculate the inflation rate
from 2008 to 2009 and from 2009 to 2010.
Year

GDP
deflator

CPI

2008

108.582

215.303

2009

109.729

214.537

2010

110.992

218.056

Solution
13.

The accompanying table calculates the inflation rates based on the GDP deflator and
on the CPI.

14.

Year

GDP
deflator

2008

108.582

Inflation rate
(based on
GDP deflator)

Inflation rate
(based on CPI)

CPI

215.303

2009

109.729

1.1%

214.537

0.4%

2010

110.992

1.2%

218.056

1.6%

The cost of a college education in the United States is rising at a rate faster than
inflation. 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. 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

$2,544

$7,202

$1,098

$1,445

$1,996

7,020

8,193

1,122

1,079

1,974

Four-year public college: out-of-state, on-campus

18,548

8,193

1,122

1,079

1,974

Four-year private college: on-campus

26,273

9,363

1,116

849

1,427

Two-year public college: commuter

Four-year public college: in-state, 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, on-campus

Tuition
and fees

Room
and board

Books
and supplies

Transportation

Other expenses

$2,713

$7,259

$1,133

$1,491

$2,041

7,605

8,535

1,137

1,073

1,989

Four-year public college: out-of-state, on-campus

19,595

8,535

1,137

1,073

1,989

Four-year private college: on-campus

27,293

9,700

1,181

862

1,440

KrugWellsECPS3e_Macro_CH07.indd S-109

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S-110

MACROECONOMICS, CHAPTER 7
ECONOMICS, CHAPTER 22

a. Calculate the cost of living for an average college student in each category for
2009 and 2010.
b. Calculate an inflation rate for each type of college student between 2009 and
2010.

14.
Solution

a. To calculate the cost of living, we add all the costs in each category. The cost of
living for each type of student is calculated in the accompanying table.
Average cost of attendance in dollars
2009
2010

Two-year public college: commuter

$14,285

$14,637

Four-year public college: in-state,

on-campus

19,388

20,339

Four-year public college: out-of-state,

on-campus

30,916

32,329

Four-year private college: on-campus

39,028

40,476

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. Because each type
of student consumes the same goods and services in 2009 and 2010, the cost of
living can be used as a price index. Using the formula, the inflation rates are calculated in the following table.
Inflation rate

KrugWellsECPS3e_Macro_CH07.indd S-110

Two-year public college: commuter

2.5%

Four-year public college: in-state, on-campus

4.9%

Four-year public college: out-of-state, on-campus

4.6%

Four-year private college: on-campus

3.7%

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