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MID1econ3_fall08_SAsol

MID1econ3_fall08_SAsol - Inflation rate 2000 to 2001 =(1.31...

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1 Elements of Economics 3 Midterm1 Solution MIDTERM 1 Suggested Solution Section II – Short Answer Questions Q1. CPI 1999 = 1 CPI 2000 = [(1*450) + (10*12) + (500*6) + (100*8)]/ [(1*400) + (10*10) + (500*5) + (100*8)] = 4370/3800 = 1.15 CPI 2001 = [(1*500) + (10*8) + (500*7) + (100*9)]/ [(1*400) + (10*10) + (500*5) + (100*8)] = 4980/3800 = 1.3105
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Unformatted text preview: Inflation rate 2000 to 2001 = (1.31 – 1.15)/1.15 = 13.9% Q2. Nominal GDP: Y = C + I + G + NX 2000: Y = 1000 + 350 + 500 + (-300) = 1,550 2005: Y = 1,200 + 550 + 300 + (-200) = 1,850 To calculate Real GDP in 2000 and 2005 using 1990 as the base year, deflate by the CPI: 2000 GDP = 1,550/1.18 = 1313.56 2005 GDP = 1,850/1.26 = 1468.25...
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