Problem Set #1

Problem Set #1 - c. Boeing sells an airplane to Japan...

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This Problem Set is collected on Tuesday, Jan 22 in class. ECN101 Instructor: Masako Miyanishi Problem Set 1 1. A farmer grows a bushel of wheat and sells it to a miller for $1.00. The miller turns the wheat into flour and then sells the flour to a baker for $3.00. The baker uses the flour to make bread and sells the bread to an engineer for $6.00. The engineer eats the bread. a. What is the value added by each person? b. What is the contribution to GDP? 2. Suppose a woman marries her butler. After they are married, her husband continues to wait on her as before, and she continues to support him as before (but as a husband rather than as an employee). How does the marriage affect GDP? How should it affect GDP? 3. Place each of the following transactions in one of the four components of expenditure: consumption, investment, government purchases, and net exports. a. Boeing sells an airplane to the Air Force. b. Boeing sells an airplane to American Airlines.
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Unformatted text preview: c. Boeing sells an airplane to Japan Airline. d. Boeing builds an airplane to be sold next year. 5. Consider an economy that produces and consumes bread and automobiles. In the following table are data for two different years. Year Year 2000 2010 Price of an automobile $50,000 $60,000 Price of a loaf of bread $10 $20 Number of automobiles produced 100 cars 120 cars Number of loaves of bread produced 500,000 loaves 400,000 loaves a. Using the year 2000 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI. b. How much have prices risen between year 2000 and year 2010? Compare the answers given by the Laspeyres and Paache price indices. Laspeyres index is the index for a fixed basket such as CPI, and Paache index is the index for a changing basked such as GDP deflator. Explain the difference....
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This homework help was uploaded on 04/17/2008 for the course ECON 101 taught by Professor Miyanishi during the Winter '08 term at UC Davis.

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