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EC4710-M1-S08 - NAME ECONOMICS 4710 SOLUTIONS to MIDTERM-1...

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NAME: ECONOMICS 4710 SOLUTIONS to MIDTERM-1 Louisiana State University Instructor: Bulent Unel Date: February 21, 2008 Important: This is a closed book exam. The exam has two parts. The first part consists of 20 multiple choice questions and the second part consists of 2 quantitative questions. Check that you have them all. Do not take any part of this exam with you when you leave.
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Part I: Multiple Choice Questions (Each 2.5 pts). 1. Which of the following non-market goods or services is included as an estimate in U.S. GDP? a. the value of unpaid housework b. the value of vegetables that people grow in their gardens c. the estimated rental value of owner-occupied homes d. None of the above are correct. Answer: c 2. Goods that go into inventory and are not sold during the current period are TABLE 1. Production and Market Prices Price of Quantity of Price of Quantity of Year Bread Bread Butter Butter 2003 1.0 100 2.0 100 2004 1.1 200 2.5 200 3. Suppose that a hypothetical economy produces only breads and butter. Total produc- tion and corresponding market prices are given in Table 1. Suppose that you chose 2003 as the base year. What is the real GDP in 2004? 2
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4. Consider the same economy described in Table 1. What is the GDP deflator in 2004? 5. If the price index in the first year was 90, in the second year was 100, and in the third year was 95, the economy experienced a. 10 percent inflation between the first and the second and 5 percent inflation between the second and third years. b. 10 percent inflation between the first and the second and 5 percent deflation between the second and third years. c. 11 percent inflation between the first and the second and 5 percent inflation between the second and third years. d. 11 percent inflation between the first and the second and 5 percent deflation between the second and third years. Answer: d
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