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ps1ans - moving If the AD curve shifts we trace out...

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ECON 205: PRINCIPLES OF MACROECONOMICS FALL 2008 MARK MOORE PROBLEM SET 1: SOLUTIONS 1. To calculate the growth rate of GDP over the 1960s, use the formula [(GDP 1970 – GDP 1960 )/ GDP 1960 ], or more simply, [(GDP 1970 /GDP 1960 )- 1]. Use a similar calculation for the other decades and for real GDP per capita. Using the numbers for the 10 th edition, 2007 update, produces the following growth rates: Real GDP Real GDP per capita 1960s 50.8% 32.9% 1970s 36.8% 23.2% 1980s 37.8% 25.4% 1990s 38.0% 22.2% The 1960s look most unusual. The recent decades seem very similar, despite the usual perception that the 1970s were much worse. Note that real GDP growth between 2000 and 2007 was only 17.4%. The first decade of this century will have much lower growth than any postwar decade, and probably lower than the 1930s as well. Real GDP per capita grew by 9.8% between 2000 and 2007. 2. AD is likely to be shifting to the right (or at least moving faster to the right than AS is
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Unformatted text preview: moving). If the AD curve shifts, we trace out equilibrium points along the AS curve, which slopes up. Output and the price level move in the same direction. 3. The AD curve shifts to the right. Output and the price level increase. 4. The AS curve shifts left. Output falls, and the price level rises. 5. a. GDP increases by \$15,000 (assuming, of course, that the carpenter reports this income to the authorities). b. GDP increases by \$3,000. The productive activity of using the materials to build the garage is not counted, since this activity was not sold on an organized market. c. No effect in GDP. d. GDP increases by \$150,000. e. No effect on GDP. f. GDP increases by \$2000. g. No effect on GDP. h. GDP increases by \$1000, the price of the plasma TV....
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