Download Principles of Economics II – Macroeconomics Homework #1: Ch 23

Principles of Economics II – Macroeconomics
Homework #1:
Ch 23~24 and Article Questions
Article Questions
“Korean economy grows...” (not part of the article packet)
1.
Based on the article’s information, discuss what is happening with each of the 4 components of
GDP? Don’t just provide the numbers, explain more of what is happening.
2.
Do you think that the GDP figures being used refer to real or nominal GDP? Why?
3.
If the GDP in the above question refer to real GDP, do you think that the nominal GDP is larger or
smaller than what is listed? Why?
“Real Household Income...” (in the article packet)
1.
What is happening to the CPI in Korea?
Why?
2.
Why is consumer demand affecting the CPI?
3.
What is the relationship between inflation and CPI?
4.
Will the current changes in CPI affect your family?
How?
Book Questions
You will need to get the following questions from the 5 th edition book in the Problems and Applications
section at the end of the chapters.
Questions for Ch23:
3, 5, 6, 8
Questions for Ch24:
2, 6, 7
Ch 23:
3
a. Consumption increases because a refrigerator is a good purchased by a household.
b. Investment increases because a house is an investment good.
c. Consumption increases because a car is a good purchased by a household, but investment
decreases because the car in Ford’s inventory had been counted as an investment good until it was
sold.
d. Consumption increases because pizza is a good purchased by a household.
e. Government purchases increase because the government spent money to provide a good to the
public.
f. Consumption increases because the bottle is a good purchased by a household, but net exports
decrease because the bottle was imported.
g. Investment increases because new structures and equipment were built.
5.
a.
Calculating nominal GDP:
2008: ($1 per qt. of milk  100 qts. milk) + ($2 per qt. of honey  50 qts. honey) = $200
2009: ($1 per qt. of milk  200 qts. milk) + ($2 per qt. of honey  100 qts. honey) = $400
2010: ($2 per qt. of milk  200 qts. milk) + ($4 per qt. of honey  100 qts. honey) = $800
Calculating real GDP (base year 2008):
2008: ($1 per qt. of milk  100 qts. milk) + ($2 per qt. of honey  50 qts. honey) = $200
2009: ($1 per qt. of milk  200 qts. milk) + ($2 per qt. of honey  100 qts. honey) = $400
2010: ($1 per qt. of milk  200 qts. milk) + ($2 per qt. of honey  100 qts. honey) = $400
Calculating the GDP deflator:
2008: ($200/$200)  100 = 100
2009: ($400/$400)  100 = 100
2010: ($800/$400)  100 = 200
b. Calculating the percentage change in nominal GDP:
Percentage change in nominal GDP in 2009 = [($400 − $200)/$200]  100 = 100%.
Percentage change in nominal GDP in 2010 = [($800 − $400)/$400]  100 = 100%.
Calculating the percentage change in real GDP:
Percentage change in real GDP in 2009 = [($400 − $200)/$200]  100 = 100%.
Percentage change in real GDP in 2010 = [($400 − $400)/$400]  100 = 0%.
Calculating the percentage change in GDP deflator:
Percentage change in the GDP deflator in 2009 = [(100 − 100)/100]  100 = 0%.
Percentage change in the GDP deflator in 2010 = [(200 − 100)/100]  100 = 100%.
Prices did not change from 2008 to 2009. Thus, the percentage change in the GDP
deflator is zero. Likewise, output levels did not change from 2009 to 2010. This means
that the percentage change in real GDP is zero.
c.
Economic well-being rose more in 2008 than in 2009, since real GDP rose in 2009 but
not in 2010. In 2009, real GDP rose but prices did not. In 2010, real GDP did not rise but
prices did.
6.
Year
a.
Nominal GDP
GDP Deflator (base
(billions)
year: 1996)
2000
$9,873
118
1999
$9,269
113
The growth rate of nominal GDP is ($9,873 − $9,269)/$9,269  100% = 6.5%.
b. The growth rate of the deflator is (118 − 113)/113  100% = 4.4%.
c.
Real GDP in 1999 (in 1996 dollars) is $9,269/(113/100) = $8,203.
d. Real GDP in 2000 (in 1996 dollars) is $9,873/(118/100) = $8,367.
e.
The growth rate of real GDP is ($8,367 − $8,203)/$8,203  100% = 2.0%.
f.
The growth rate of nominal GDP is higher than the growth rate of real GDP because of
inflation.
8.
a.
GDP is the market value of the final good sold, $180.
b. Value added for the farmer: $100.
Value added for the miller: $150 – $100 = $50.
Value added for the baker: $180 – $150 = $30.
c.
Together, the value added for the three producers is $100 + $50 + $30 = $180. This is
the value of GDP.
Ch 24
2. a. The percentage change in the price of tennis balls is (2 – 2)/2 × 100% = 0%.
The percentage change in the price of golf balls is (6 – 4)/4 × 100% = 50%.
The percentage change in the price of Gatorade is (2 – 1)/1 × 100% = 100%.
b. The cost of the market basket in 2006 is ($2 × 100) + ($4 × 100) + ($1 × 200) = $200 + $400 + $200
= $800.
The cost of the market basket in 2007 is ($2 × 100) + ($6 × 100) + ($2 × 200) = $200 + $600 + $400 =
$1,200.
The percentage change in the cost of the market basket from 2006 to 2007 is (1,200 – 800)/800 × 100%
= 50%.
c. This would lower my estimation of the inflation rate because the value of a bottle of Gatorade is now
greater than before. The comparison should be made on a per-ounce basis.
d. More flavors enhance consumers’ well-being. Thus, this would be considered a change in quality and
would also lower my estimate of the inflation rate.
6.
a. introduction of new goods; b. unmeasured quality change; c. substitution bias; d.
unmeasured quality change; e. substitution bias
7.
a.
($0.75 − $0.15)/$0.15 x 100% = 400%.
b. ($14.32 − $3.23)/$3.23 x 100% = 343%.
c.
In 1970: $0.15/($3.23/60) = 2.8 minutes. In 2000: $0.75/($14.32/60) = 3.1 minutes.
d. Workers' purchasing power fell in terms of newspapers.