ps2 - ECONOMICS 205 PRINCIPLES OF MACROECONOMICS FALL 2007...

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ECONOMICS 205: PRINCIPLES OF MACROECONOMICS FALL 2007 MARK MOORE PROBLEM SET 2 1 – 5. Baumol and Blinder, p. 127, problems 1, 3, 4, 5, and 6. 6. An economy uses three goods: cars, computers, and oranges. Quantities and prices per unit for years 2001 and 2002 are as follows; 2001 2002 Quantity Price Quantity Price Cars 10 $2000 12 $3000 Computers 4 $1000 6 $500 Oranges 1000 $1 1000 $1 a. What is nominal GDP in 2001 and in 2002? By what percentage does nominal GDP change from 2001 to 2002? b. Using the prices for 2001 as the set of common prices, what is real GDP in 2001 and in 2002? By what percentage does real GDP change from 2001 to 2002? c. Redo part b using the prices for 2001 as the set of common prices. d. Why are the two output growth rates constructed in (b) and (c) different? Which one is correct? Explain your answer. 7. Use the data from problem 2 to do this problem a. Using prices in 2001 as the common set of prices to construct real GDP, compute the GDP deflator for 2001 and 2002 and the rate of inflation from 2001 to 2002.
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