MidtermOct16_Solutions (1).pdf

MidtermOct16_Solutions (1).pdf - ECON 330 Midterm...

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ECON 330: Midterm Examination I Prof.Barczyk October 19, 2016 Ying Tung Chan grades questions 1b-d and 2b, Alan Book grades questions 1a and 2a. Regrading policy If you believe that the TAs made a mistake in grading your exam, you must provide the TA who graded the particular question with a written appeal which clearly points out the mistake(s) the TA made. You and the TA have to sign the appeal and date it. The TA will then regrade your entire exam, and you could end up with a lower grade. If after the regrade you are still convinced that the TA is wrong, you have to provide the TA with a second written appeal which has to be signed and dated. At this point make photocopies of both signed and dated appeals and hand them to me. Leave the originals with the TA. Finally, you have to ensure that the appeals are done in a timely manner. Your first appeal has to take place during the first three (3) days following the date of when the exam was officially handed back.
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1. (40pts) Basic concepts (a) (20pts) (i) Define real GDP per capita. (ii) Explain why imputations are required for certain goods and services in order to calculate GDP, and give two examples of how this is done. (iii) Explain why the slope of a time series of real GDP per capita does not equal the growth rate. (iv) Why do economists prefer real GDP over nominal GDP? Answer: (i) GDP is the total market value of all final goods and services produced domestically within a certain period of time, usually one year. Real GDP means that a constant set of prices is used to calculate GDP, and per capita means that real GDP is divided by the country’s popu- lation size. (ii) For certain goods and services imputations are required since they comprise an important part of the economy (e.g. government services, housing) but lack a market price since they are not traded in a market. Since GDP is the market value, but there is no market price available, such a price must be imputed, e.g. for homeowners: rent the owner pays to himself, government services: valued at cost. (iii) The growth rate is given by g t,t +1 = y t +1 - y t y t but the slope of a time series is y t +1 - y t which are obviously not the same. (iv) Economists prefer real
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