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ECONOMICS 205: PRINCIPLES OF MACROECONOMICS FALL 2007 MARK MOORE PROBLEM SET 1 1. In the inside back cover of the text, there are data on the U.S. economy. Using data on real GDP (i.e., data in chained 2000 dollars) for 1960, 1970. 1980, 1990, and 2000, calculate the growth rate for each decade (1960s, 1970s, 1980s, 1990s). The growth rate for the 1960s is the change in real GDP between 1960 and 1970 divided by real GDP in 1960. Which decade seems most unusual? Does anything surprise you about your answers? 2. Consider the AD and AS diagram we introduced in class. Suppose that you notice inflation and output moving in the same direction. Which curve is more likely to be shifting? 3. Suppose consumers decide to increase their spending. What do you think happens to the AD-AS diagram? (Which curve is affected and how does it move?) What is likely to happen to output and the price level? 4. Suppose natural disasters destroy a number of factories and ruin crops. What do you think happens to the AD-AS diagram, output, and the price level?

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