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econ 114a

# econ 114a - Econ 114 Development Economics Homework 1 Due...

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Econ 114 Development Economics Homework 1 Due date Thursday April 24 . You are encouraged to work in groups, but you must turn in your own problem set with your own words. Problem sets must be typed and final answers highlighted . Graphs and math can be hand written. All problem sets are due at the beginning of class; late problem sets will be penalized 25% for each day it is late. The late clock begins 5 minutes after problem sets are collected. Review Ideas/calculations should have been covered in previous economics classes. 1. Use the following table to calculate the following questions. Year Q-wheat P-wheat Q-milk P-milk 2004 100 \$1.00 75 \$2.50 2005 120 \$1.25 100 \$3.00 2006 125 \$1.75 110 \$3.50 a. Calculate nominal GDP for 2004, 2005 and 2006. 2004=287.50 2005=450 2006=603.75

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b. Calculate the growth rate for 2005 and 2006. 2004 to 2005 = 56.52% 2005 to 2006 = 34.17% c. Calculate real GDP for 2004, 2005 and 2006 using 2004 as your base year. 2004=287.5 2005=370 2006=400 d. Use part c to calculate the growth rate for 2005 and 2006. 2004 to 2005 = 28.7% 2005 to 2006 = 8.1% e. Use the GDP deflator to calculate inflation for 2005 and 2006. 2004=100 2005= 121.6 2006=150.9 Inflation numbers 2004 to 2005 = 21.6% 2005 to 2006 = 24.1%
f. Using a market basket of 25 wheat and 5 milk, calculate the CPI for 2004, 2005 and 2006. 2004 basket=37.5 2005 basket=46.25 2006 basket=61.25 CPI Numbers 2004=100 2005=123.3 2006=163.3 g. Use the CPI to calculate inflation for 2005 and 2006. 2004 to 2005 = 23.3% 2005 to 2006 = 32.4% h. Why are the growth rates for part b and part d different? growth rate 2005: 56.52% vs 28.7% growth rate 2006: 34.17% vs 8.1% Nominal does not hold prices constant so includes inflation. Real GDP does not include price changes so no inflation in numbers . i. Why is inflation using the GDP deflator and the CPI so different? inflation rate 2005: 21.6% vs 19.35%

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inflation rate 2006: 24.11% vs 18.9% GDP deflator is inflation for entire economy. CPI is inflation for the consumer. So CPI is more realistic of what consumers face.
Purchasing Power Parity 2. Use the following table to answer the following questions. Country Production of TV sets Price of TV sets in local currency Production of haircuts Price of haircuts in local currency GDP in local currency A 7 12 50 6 384 B 3 12 20 2 76 a. What is the ratio of GDP between the two countries?

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econ 114a - Econ 114 Development Economics Homework 1 Due...

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