f07 ec51 ps4

f07 ec51 ps4 - Economics 51D 24 September 2007 PROBLEM SET...

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24 September 2007 PROBLEM SET 4 Due Monday, October 1 1. Read the article “What Goes Up…” from the December, 2004 issue of Smart Money (a magazine put out by the Wall Street Journal folks, naturally). In this article, Roger Lowenstein uses some of the economics mentioned in class to forecast what will eventually happen to the price of oil. Do you think he’s right, or is he missing something critical? Use the long-run supply and demand model to show what Lowenstein is arguing, and then do one of two things. On one hand, if you agree with Lowenstein, show and explain how you think the short run will converge to Lowenstein’s long-run picture. On the other hand, if you think Lowenstein’s long-run picture is incorrect, show and explain what a more correct view of the long-run is, and what Lowenstein misses. Again, show and explain how the short run turns into your long-run view. 2. Using the historical data on US GDP and prices from the spreadsheet on the course website, find the following growth rates: A. What’s the average annual growth rate of real GDP between 1929 and 2002, and 1946-2002? B. Calculate the average annual growth rate of GDP for each decade, as in the 1930s, 1940s, and so on. Which decade had the fastest real GDP growth? Why? What is a “high” growth rate of GDP for the US? C. Repeat A and B for nominal GDP. D. Find the implicit GDP deflator for 1929-2002 and the average inflation rate for 1929-2002. Compare this to the average inflation rate you obtain when you use the CPI over the same period. E. Repeat B for the inflation rates, calculated using the GDP deflator and the CPI. Which decades had the highest inflation rates, and why? What is a “high” inflation rate for the US? F. Calculate the average unemployment rate (percent of civilian labor force unemployed) for 1890-1990, and for the 1960s, 1970s, and 1980s. What’s a “low” unemployment rate for the US? 1
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f07 ec51 ps4 - Economics 51D 24 September 2007 PROBLEM SET...

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