mt2f05 - ECON 2 Midterm 2 Fall 2005 Answer key 1 In 2005...

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ECON 2 - Midterm 2 – Fall 2005 Answer key 1) In 2005: WAP = 10000, LFPR=80%, U=600 a) Unemployment rate? LF= 80% * 10000=8000 UR=U/LF=600/8000=7.5% b) In 2006, LF=8000+300=8300 U=600+(300*1/3)=700 E=LF-U=8300-700=7600 UR=700/8300=8.43% LFPR=8300/10000=83% EPR=7600/10000=76% c) Discouraged workers = (300*1/3)*10%=10 LF=8300-10=8290 U=700-10=690 E=7600 UR=690/8290=8.32% LFPR=8290/10000=82.9% EPR=7600/10000=76% 2) Question 2 a) Nominal GDP for 2003 and 2004 2003: NGDP= 6*900+3*200 = 5400+600=6000 2004: NGDP= 4*1200+4*600=4800+2400=7200 Nominal Growth =7200/6000-1=20% b) Real GDP (base year =2003) 2003: RGDP=6000 2004: RGDP = 1200*6+600*3=7200+1800=9000 Real Growth = 9000/6000-1=50% c) Chain Link Method for RGDP (2004) Using chain link method to calculate real GDP growth for 2004 Real growth (base year 2003) = 50% Real growth (base year 2004) = 63.6% Geometric average = sqrt(1.5*1.636) = 1.567 (real growth in 2004) Arithmetic average = (1.5+1.636)/2 = 1.568 Real GDP in 2004 = Real GDP at 2003 * chain linked growth rate = 6000* 1.567 = 9399.14 (geometric ) or
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= 6000*1.568 = 9408 Deflator for 2004 = NGDP(2004)/RGDP chain linked (2004) = 7200/9399.14*100 = 76.6 geometric or = 7200/9408*100 = 76.5 (arithmetic) 3) Difference between GDP Deflator and Consumer Price Index GDP Deflator is defined as the ratio of the nominal GDP to real GDP for the period.
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