1 EC
301
Week Problem 1-1
a. Suppose that real GDP is currently $97 Billion per year and natural real GDP is currently
$100 billion. Measured as a percentage, what is the GDP gap?
97 100/100 =
-3/100 = -.03
Answer = - 3% GDP gap which means there is a recession since it is a negative
percentage
b. Suppose natural real GDP is growing by $4 billion per year. By how much must real
GDP have risen after two years to close the GDP gap?
In two years, natural real GDP grows 4B per year from 100B to 108B.
To close the gap, real GDP would have to grow 11B total from 97B to 108B
Answer = 11 Billion
Problem 2-2
Assume that gross private domestic investment is $800 billion and the government (state, local,
and federal combined) is currently running a $400 billion deficit. If households and businesses
are saving $1,000 billion, what the is value of net exports? Use equation (2.6) to explain your
answer.
T G = (I + NX) S
NX = S-I (G-T)
NX = 1000 800 400
Answer =
NX = -200 Billion
Since domestic saving is inadequate to finance both domestic investment and the
government deficit, net exports must be negative in order to finance injections.
Problem 2-5
If nominal GDP is $10,608 and real GDP is 10,400, what is the value of the GDP deflator?
GDP Deflator = nominal GDP/real GDP
GDP Deflator = $10,608/$10,400
GDP Deflator = 1.02
Problem 2-10
In 2009, civilian employment was 139,877,000 and unemployment was 14,265,000. What was
the unemployment rate?
Unemployment rate = Number of Unemployed/civilian employed + unemployed
Unemployment rate = 14,265,000/ 139,877,000 + 14,265,000
Unemployment rate = 14,265,000/154,142,000
Unemployment rate = 9.25%
EC
301