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Homework 1
Economics 503
Foundations of Economic Analysis
Practice
1.
Real Hong Kong Box Office. It is 2004. You are analyzing the profitability of
Hong Kong’s movie industry. You hear that Steven Chao’s Kung Fu Hustle is the
top grossing Hong Kong film of all time. You are given a list of local gross box
office receipts for a number of Hong Kong movies.
1. Kung Fu Hustle
2. Shaolin Soccer
3. First Strike
4. Rumble In The Bronx
5. Infernal Affairs
6. God of Gamblers Return
7. Justice My Foot
8. All's Well, End's Well
9. Thunderbolt
10. Mr. Nice Guy
11. Fight Back to School
12. All for the Winner
13. Drunken Master II
14. God of Cookery
15. God of Gambers II
16. Flirting Scholar
17. All's Well, End's Well 1997
Box Office Revenues
HK$60,830,000
HK$60,770,000
HK$57,519,000
HK$56,911,000
HK$55,030,000
HK$52,540,000
HK$49,880,000
HK$48,990,000
HK$45,650,000
HK$45,420,000
HK$43,830,000
HK$41,330,000
HK$40,970,000
HK$40,860,000
HK$40,340,000
HK$40,170,000
HK$40,160,000
Year
2004
2001
1996
1995
2003
1993
1992
1992
1995
1997
1991
1990
1994
1997
1990
1993
1997
Year
CPI
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
63.5
70.8
77.4
84.0
90.8
98.7
104.6
110.6
113.5
109.8
106.6
104.8
101.4
99.3
99.3
(Source: www.Asianboxoffice.com)
Adjust these for inflation using the Hong Kong CPI. Convert all of these film
grosses into 2004 dollars (i.e. use 2004 as the reference year) and rank the films
by their grosses in 2004 dollars.
2.
You are given some statistical accounts for the country of Fruitopia which
produces two goods, Apples and Oranges. The accounts contain information on
the price of apples and the price of oranges for the years 1995 to 2005. You are
asked to calculate a CPI, nominal GDP, real GDP and the GDP deflator using
1995 as the base year. Note that there is no investment, government spending,
exports or imports in Fruitopia so GDP is equal to consumption.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Apples
price
quantity
$1.00
100
$1.10
105
$1.21
110
$1.33
115
$1.46
120
$1.61
125
$1.77
125
$1.95
130
$2.14
135
$2.36
140
$2.59
145
Oranges
price
quantity
$2.00
100
$2.40
105
$2.88
100
$3.46
100
$4.15
100
$4.98
95
$5.97
90
$7.17
90
$8.60
85
$10.32
80
$12.38
75
a. Calculate the CPI. The representative market basket for the Fruitopian
consumer is 100 apples and 100 oranges. Calculate the cost of this market
basket in 1995. The CPI in subsequent years is the price of this same
market basket (100 apples and 100 oranges) relative to price of that basket
in the base year (multiplied by 100).
b. Calculate the nominal GDP which is the sum of the market value of apples
(price × quantity) plus the market value of oranges in each period.
c. Calculate real GDP which is the sum of the market value of apples
calculated using the 1995 price (1 × quantity of apples) plus the value
oranges calculated using the 1995 price (2 × quantity of oranges).
d. Calculate the GDP deflator as the ratio of the nominal GDP to the real
GDP.
e. Calculate the average inflation rate over the period of 1996-2005 using
both price measures. Which price index increases the most over time?
Explain. Notice that the market basket has switched toward apples whose
price has not risen sharply over time.
CPI
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
CPI
Inflation
N/A
Nominal
GDP
Real
GDP
GDP
Deflator
GDP Deflator
Inflation
N/A
3.
The demand for widgets is represented as QD = 100 – 8 P and the supply of
widgets are given by QS = 40 + 4P. Calculate equilibrium price and quantity.
Calculate the change in equilibrium price and quantity if a shift in the demand
curve gives a demand schedule of QD = 124 – 8 P.
4.
The Organization of Economic Co-operation and Development (OECD)
constructs theoretical measures of potential output for most of the G20 countries
and some others which are used to develop projections in their semi-annually
published Economic Outlook publication. Gather information from the OECD
Stats Extract website on the output gap and unemployment rates in 2008 and 2009
from the following website http://stats.oecd.org/index.aspx . On the left hand bar
of menus, open the menu marked OECD Economic Outlook and the sub-menu
marked OECD Economic Outlook Current and Recent Editions. Click on the link
on that menu marked Economic Outlook No 86 - December 2009 - Annual
Projections for OECD Countries (or go directly to this link
http://stats.oecd.org/Index.aspx?DataSetCode=EO86_MAIN ). Under Current
Data Selection, Click on the link marked Variable [0/142]. This should bring up a
selection of menus. Open the menu called SUP:Supply Block and check GAP:
Output gap of the total economy. Open the menu called LAB: Labour markets and
check UNR: Unemployment rate. Choose under Time and Frequency years 2008
and 2009; Choose under Country, 10 countries including Australia, Canada,
France, Germany, Italy, Japan , Netherlands, Spain, United Kingdom, and USA.
Download the data on the output gap and unemployment rate by country for 2009.
Fill in the following chart.
Output Gap
Unemployment Rate
AUS: Australia
CAN: Canada
FRA: France
DEU: Germany
ITA: Italy
JPN: Japan
NLD: Netherlands
ESP: Spain
GBR: United Kingdom
USA: United States
Calculate the cross-country correlation between the output gap and the unemployment
rate across countries.