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%
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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.
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Purchasing Power Parity 2. Use the following table to answer the following questions. Country Production of
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This note was uploaded on 05/31/2008 for the course ECON 114 taught by Professor Cindybenelli during the Spring '08 term at UCSB.

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

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