B06-Tutorial1-Solns

Principles of Macroeconomics (with Xtra!)

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Page 1 of 8 THE UNIVERSITY OF TORONTO AT SCARBOROUGH Division of Management ECM B06S – Macroeconomic Theory and Policy: A Mathematical Approach TUTORIAL #1 - SOLUTIONS Q1. Exhibit: Quantity Consumed and Price of Good Base Year Later Year Price of Good A 100 200 Quantity of Good A 100 200 Price of Good B 100 100 Quantity of Good B 100 100 In the exhibit, the citizens of country XYZ come to desire more of good A. As a result the quantity and price of the good both rise. a) Compute nominal GDP in the base year and the later year. (Nominal GDP t ) = G P it C Q it where i = A or B and t = Base (t=0) or Later year t = Base Year (t=0), (Nominal GDP BASE YEAR ) = 100(100) + 100(100) = 20,000 t = Later Year, (Nominal GDP LATER YEAR ) = 200(200) + 100(100) = 50,000 b) Compute real GDP in the base and later years (in base-year prices). (Real GDP t ) = G P i0 C Q it where i = A or B and t = Base(t=0) or Later year t = Base Year (t=0), (Real GDP BASE YEAR ) = 100(100) + 100(100) = 20,000 t = Later Year, (Real GDP LATER YEAR ) = 100(200) + 100(100) = 30,000 Page 2 of 8 c) Compute the GDP deflator in the later year, using your answers to parts a and b. PGDP t = (Nominal GDP t )/(Real GDP t ) PGDP LATER YEAR = 50,000/30,000 = 5/3 = 1.67 d) Compute the Consumer Price Index (CPI) the fixed-weight price index for the later year, using the base-year quantities as weights. CPI t = ( G P it C Q i0 )/( G P i0 C Q i0 ) = (Nominal cost of basket)/(Real cost of basket) CPI LATER YEAR = [200(100) + 100(100) ]/{ 100(100) + 100(100) } = 30,000/20,000 = 3/2 = 1.50 ASIDE: By construction (1) CPI BASE YEAR = PGDP BASE YEAR = 1.00; and (2) Real GDP BASE YEAR = Nominal GDP BASE YEAR Q2. Suppose that a closed economy is described by the following set of equations (Note: Subscripts that read “BAR” refer to fixed values of variables): Y = Y BAR = F(K BAR ,L BAR ) = 2,400 , C = 250 + 0.75(Y - T) , I = I(r) = 400 - 10r , G = G BAR = 300 , and T = T BAR = 200 . a) Find the levels of saving, investment, income and the real interest rate consistent with equilibrium....
View Full Document

Page1 / 8

B06-Tutorial1-Solns - Page 1 of 8 THE UNIVERSITY OF TORONTO...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online